The 2020 Mid-Year Economic Update_long

Plan for Industrial Rent Increase

Distributors can expect more expensive warehouse space on top of increased HR costs.
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With distributors already facing increased cost of doing business because of changes in laws related to labor and health insurance, they must also brace for higher warehouse rents, according to a recent study from Cushman & Wakefield.

"Healthy demand from logistics and distribution users combined with supply constraints continue to fuel rent growth," according to the report. "U.S. industrial rents increased 4.1 percent in 2Q 2016 from a year ago. Industrial rents rose in 68 of 79 markets during the same period, with over one-quarter of the nation's markets now reporting double-digit gains."

Industrial markets in the U.S. last quarter absorbed a "record-setting 70.1 million square feet of space," up 6 percent from the same period a year ago. Nationally, vacancy dipped to 5.8 percent, down 30 basis points from the first quarter and down 80 basis points from 2Q 2015.

In many markets, industrial rents are at historic highs, with rental appreciation seen across every industrial product type, the report said.

This is another area where distributors must find ways to manage their costs. As a result of the different values the next generation workforce places on employment, as well as new or changing regulations, the cost of employment keeps rising.

In the most recent MDM Distribution Trends survey, respondents identified rising benefits costs as a top pain point. Managing costs elsewhere – including warehouse space – was another.

These rising costs come at a troubling time for an industry still reeling from commodity and other headwinds. Excluding acquisitions, distributors averaged -0.2 percent revenue growth in the second quarter, according to the most recent MDM-Baird Distribution Survey.

This marked the third consecutive quarter of negative growth and another period of failing to meet expectations. Distributors projected 1.5 percent revenue growth for the quarter in the first-quarter survey.

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