Ecommerce demand pushes up warehouse rental rates

The rapid growth of ecommerce is pushing up warehouse rents and helping the sector recover from the impact of the global financial crisis, the chief executive of ProLogis, the world's largest industrial property landlord by revenue, said.

Hamid Moghadam said rental rates fell by a quarter in the aftermath of the global financial crisis, but in recent years fast-growing demand from ecommerce companies is enticing developers to build new warehouses, even as the popularity of online shopping raises questions about the future of bricks-and-mortar stores.

Warehouse rates "are coming out of that hole very quickly. Pricing power is returning," Mr Moghadam told the Financial Times

ProLogis said average rental rates on leases signed in the second quarter increased 4 per cent from a year ago. In the first quarter it rose 2 per cent year-on-year. This marks the first time in more than four years that rates increased for two consecutive quarters.

Vacancies for ProLogis buildings, greater than 250,000 sq ft, stand at only 1 per cent while those more than 500,000 sq ft are fully occupied.

However, not all warehouses are created equal. Logistics experts say it is hard to modify old-fashioned warehouses to serve online shopping, which requires buildings capable of managing smaller orders, sustain greater employee density and are located close to urban areas for shorter delivery times.

ProLogis, which counts Amazon, FedEx, Unilever and Home Depot among its tenants, expects to spend $2bn on development this year, up from $1.2bn in 2012. A large portion of this will be used to construct ecommerce related buildings, which represented a third of all new development last year.

"The supply chain needs of online delivery are completely different from in-store delivery. Companies need new buildings and this is driving demand in a very big way," Mr Moghadam said.

The San Francisco-based company has approximately $48bn of assets owned, managed and under development in countries from the US and Brazil to China and Japan.

Although the US is the world's largest ecommerce market, ProLogis is also benefiting from growing demand from countries such as China, Brazil and Mexico where "big box" retailers are uncommon. About 40 per cent of the company's assets rest outside of the US.

"Ecommerce has become the most important driver of industrial property development since China entered the World Trade Organisation and drove up demand for cargo containers," said Rene Circ, director of industrial research at CoStar Group.

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