Online Business Forcing Rental Rates Higher, Commercial Real Estate Firm Says
The boom in e-commerce is affecting the demand for commercial real estate and driving up rental rates, according to a recent report by commercial real estate firm CBRE.
“While prime rent growth has slowed since 2015, the logistics sector continues to be impacted by structural changes such as online retailing, which has transformed global supply chains,” the report’s authors said.
The company defines “prime” logistics rent growth as the highest achievable rent for industrial distribution space of the highest quality and specification, and in the best location within each industrial market.
Coastal U.S. logistics hubs, especially, continue to experience exceptional year-over-year rent growth. Seattle posted the strongest rent increase among these markets at 16.9%. In total, the United States has five of the 10 fastest-growing global markets.
CBRE said that among the world’s most-expensive markets, these “land-constrained” hubs command “a premium for logistics space.” These are cities without a lot of available land for new construction, especially new warehouse construction. Seattle is a good example, the report said, and “a big reason why Seattle’s prime rent increased so much in the past year,” David Egan, CBRE global head of industrial and logistics research, said via e-mail.
CBRE said Oakland and Los Angeles/Orange County, Calif., are among the 10 most expensive markets ranked on a cost-per-square-foot basis. Oakland is $8.73 and Southern California is $8.52.
On the East Coast, Pennsylvania’s Interstate 78/81 corridor, experienced 10% rent appreciation from early 2016 to early 2017, followed by Oakland at 9.4%, L.A./Orange County at 9.2% and Atlanta, also at 9.2%.
“Rather than replacing traditional retail, e-commerce is combining with it,” Egan said. “In fact, we and others anticipate that, in just a few years from now, online and in-store retail won’t be considered separate, and the term e-commerce won’t be used much.”
While many sales have moved from in-store to online, and more likely will do so, this won’t replace in-store retail, Egan said.
“Ultimately, as the in-store and online sectors combine, we’ll find an equilibrium for both parts of the whole,” he said.
