The End of the Warehouse Expansion Era in the U.S.? 

E-commerce Growth Meets Market Realities as Construction Slows 

Recent years have seen a significant slowdown in warehouse construction across the United States, a stark contrast to the rapid expansion fueled by e-commerce growth during the pandemic. This shift is largely attributed to rising interest rates and a decrease in demand, which has brought an end to what was once a lucrative trend for both investors and developers. 

Read more: Tightening Credit Conditions and an Ongoing Liquidity Crunch Intensifies Challenges in US Commercial Real Estate 

During the past decade, warehouses emerged as highly sought-after assets, with major players like Blackstone and Singapore’s sovereign-wealth fund GIC amassing extensive portfolios. The pandemic further accelerated this trend as developers raced to meet the explosive demand from e-commerce giants such as This led to an unprecedented increase in logistics facilities across urban and suburban landscapes, driving up rents and attracting more investment into the sector. 

However, recent data suggests a significant downturn in industrial property construction starts, which fell by nearly half during the first nine months compared with that same period in 2022 – marking the most considerable decline since 2009 according to CoStar. Similarly, MSCI Real Assets reported a 45% decrease in industrial real estate sales volume during the third quarter compared to the previous year. 

The rise in debt costs coupled with a slowdown in leasing demand are primary factors contributing to this change. Commercial mortgage rates have approximately doubled over the last year while land prices remain relatively high – making new constructions financially unviable for many developers. Consequently, Green Street has observed a 16% drop from peak industrial real-estate prices and an increase in vacancy rates as e-commerce firms scale back their leasing activities. 

Despite these challenges, industry experts note that warehouse landlords are not facing a crisis comparable to what is seen in other sectors like office space. While construction levels are still historically high and vacancies relatively low with few mortgage defaults reported, there remains potential for resurgence if interest rates continue their recent downward trend. 

Read more: UBS Predicts Multiple Interest Rate Cuts by the Federal Reserve in 2024 Amid Economic Downturn 

Leading investors like Blackstone remain optimistic about the sector’s prospects despite less construction activity. A spokesperson highlighted robust supply-demand fundamentals along with strong occupancy rates and rental growth within their portfolio. 

Nevertheless, it is clear that the warehouse building boom driven by pandemic shopping habits is now drawing to a close. After Americans turned increasingly towards online shopping during lockdowns – a habit that persisted post-lockdown – e-commerce companies rapidly expanded their storage capacities leading to heightened competition for warehouse spaces among investors. 

This fervor has cooled off notably following increases in interest rates and Amazon’s decision to slow down its expansion of warehouse space. Furthermore, while certain areas still experience warehouse shortages, cities like Indianapolis, Denver, Austin, Dallas, and San Antonio now contend with excess vacant spaces due to overconstruction – challenging markets where supply has outpaced demand. 


This article was based on insights from The Wall Street Journal; read the original report here. 

December 19, 2023