The economic trends that made industrial/warehouse a white-hot category in 2020 are going strong and creating ongoing opportunities in Central Maryland.
Tenants leased approximately 6.1 million square feet of industrial/warehouse space in the greater Baltimore metropolitan region in fourth quarter 2020, according to Lee & Associates | Maryland. That represents a 40% increase over the 4.3 million square feet of space that was leased in the region during third quarter 2020. The region posted a net absorption of nearly 1.5 million square feet of space in the fourth quarter – a slight increase from the 1.4 million level the previous quarter. The vacancy rate at year-end was 6.29%, which is a slight drop from 6.8% at the end of the third quarter. Meanwhile, more than 6.3 million square feet of warehouse/industrial space is presently under construction in Central Maryland.
“The unprecedented surge of ecommerce spending and the resultant need for the additional demand of warehouse space to store and subsequently deliver products continues a trend that started several years ago,” stated Allan Riorda, SIOR, President and Principal, Lee & Associates | Maryland. “Online channels demand more space and this is especially prevalent in densely populated areas such as the Baltimore-Washington metropolitan region.”
Online shopping continues to grow at a record pace, exacerbated by the ongoing pandemic. Online purchases from grocery stores have seen especially strong growth. Development Magazine quoted Coresight Research’s U.S. Online Grocery Survey that expects a 40% increase in online sales this year.
Cold storage facilities – to handle perishable items such as food and pharmaceuticals – are poised for a breakout in the near future. The demand for cold storage “will increase by 100 million square feet over the next five years,” according to Development, and “there is less than 5 million square feet of cold storage currently being built.” Storing the COVID-19 vaccine, as well as other pharmaceutical products is expected to be a significant driver.
Vertical warehouses are expected to pop up in tighter markets. As consumers continue to eschew trips to brick and mortar centers, underutilized malls may be repurposed for logistics operations.
But, according to CBRE, the industrial/warehouse sector may be nearing its peak.
Ibrahim Bayaan, an economist with CBRE indicates that “fundamentals for the industrial sector remained strong during the pandemic” with rental rates growing at a 3.7% clip in 2020 and national vacancy standing at 7.3 %. In the coming year, these numbers are expected to be 4.8% and 8.1% respectively.
“Availability for industrial space was already low before the pandemic and close to historic lows and, going forward in the immediate future, there is no reason rents or occupancy will be lower,” Bayaan said. “This offset general weakness for the rest of the economy and other real estate sectors.”
Bayaan continues by saying “long-term ecommerce growth is expected to be slower than pre-pandemic, but a significantly larger share of retail.” Year-to-year ecommerce growth was 39.8% in 2020. That rate is expected to decrease to 17.6% this year and average in the 5.6% range between 2022 and 2025.