Record-setting consumer demand, increased port activity and record low warehouse availability are creating a challenging environment for the Northeast industrial market. Consumer spending of $565.8 billion in October 2021 alone has put extreme stress on an already overwhelmed supply chain system, according to CBRE’s Q4 2021 Northeast Industrial Ports Brief.
As businesses work to catch up to the record volumes of consumer goods entering the Port of New York and New Jersey, they are insatiably seeking warehouse space just as available industrial space dwindles across the Northeast. This pushed port activity upward by 16.1% in 2021, and the lack of available warehouse space has created many challenges, including soaring industrial rents.
“We have never before seen dynamics like these play out in the market — insatiable consumer demand, booming port activity and a dearth of available industrial space throughout the Northeast,” Thomas Monahan, a vice chairman at CBRE, said in a prepared statement. “While 58.5 million square feet of industrial space is under construction in the region, most of which is already preleased, only 6.5 million square feet is in port-adjacent submarkets.”
Warehouse leasing activity near the ports by e-commerce and third-party logistics companies has strained the supply/demand equation, putting stress on a market that is in dire need of additional space, according to the report. Occupiers have had to adjust to the new market realities and the supply chain disruptions in the Ports of Los Angeles and Long Beach in California. In many cases, they have moved to diversify their operations to the Northeast, creating additional competition for space in the region.
“The lack of warehouse space near our ports in the Northeast has prompted occupiers to look for space in markets such as southern New Jersey and Eastern Pennsylvania,” Monahan continued. “This has resulted in new projects to meet this growing demand, but it’s clear that even the new construction will not be enough. Our research shows that demand will continue unabated throughout 2022, far outstripping supply.”
As supply chain woes and consumer demand pressures persist, a tight industrial market challenges occupiers to expand their searches and face higher logistics costs. Developers are following the demand to new markets, but they face their own supply chain-driven challenges: higher land costs, pricier construction and longer lead times for materials. CBRE Research expects demand to continue to outpace supply in Northeast industrial markets until more space comes online from construction deliveries in 2022 and 2023.