The industrial real estate sector shakes off the trade war
While the media provides regular updates on the status of the tariff wars with China, the industrial real estate
sector continues to hum along, showing very little impact from any trade disputes.
To be sure, occupancy growth in the warehouse/distribution sector decelerated in 2018 after robust growth in 2017,
but growth was nevertheless positive every quarter. Reis Inc. and other analysts attributed the industrial-sector
slowdown in the first half of 2018 to the fears of a trade war and the concern that lower trade volumes would reduce
the demand for warehouse/distribution space. Was this analysis accurate?
The trade in goods increased in each
of the first three quarters of 2018.
These trade numbers seem to defy the
forecasts for stalled growth stemming
from the higher tariffs. Trade is a complicated segment of the economy and
is difficult to measure. Aggregate trade
is measured in dollar volume and is
impacted by currency values as well as
Indeed, the decline in goods trading in
2015-2016 was partly attributable to a
decline in commodity prices. Thus,
although the dollar value of trade declined in those years, it does not necessarily mean that the physical volume
of goods declined as well.
Likewise, the increase in the dollar volume of trade in 2018 may or may not
correspond to gains in the physical
volume of trade. Nevertheless, it is surprising and it suggests that the fears of
a trade war may be simply that — fear.
The growth in goods trading is consistent with employment statistics for the warehouse and storage industry.
That may be the more relevant measure for warehouse/distribution demand. In fact, employment growth soared
during much of the last five years.
Since 2013, the industry has added 340,000 jobs for a growth rate of 49 percent. This corresponded with steady
occupancy growth, along with rent growth that accelerated in 2017.
Warehouse/distribution occupancy grew by 604 million square feet from 2013 to 2018, a cumulative growth
rate of 11.1 percent. The cumulative effective five-year rent growth was 17. 4 percent. This exceeds the five-year
cumulative rent growth for office properties ( 14. 5 percent) as well as retail ( 9. 6 percent), but trails the five-year
apartment-market rent growth of 24. 6 percent.
Not surprisingly, the bigger the market, the higher the growth.
San Bernardino/Riverside, California, recorded the highest occupancy growth along with Atlanta and Chicago.
Metros with the greatest rent growth in 2018 included San Bernardino/Riverside; the Florida cities of Orlando
and Jacksonville; Sacramento, California; and Kansas City, Missouri — which each posted growth rates of
4 percent to 4. 9 percent during the year. No metro saw a rent decline last year.
Another finding of interest is that employment growth in the warehouse/distribution sector accelerated a bit in
2018, just when occupancy growth decelerated. There could be a lagged impact of one variable upon the other.
The overall picture in the warehouse/distribution sector and with trade-related statistics, however, suggests that
occupancy growth should continue to expand this year and beyond. It also suggests that any news on tariffs
and the trade war should be taken with a grain of salt. n
Sources: Reis (occupancy and rent growth); U. S. Census Bureau, Foreign Trade Division (trade data, with goods growth
reported on balance-of-payments basis); U. S. Bureau of Labor Statistics (employment)
*Q4 includes October data only
Warehouse employment growth
Warehouse/distribution occupancy growth
Warehouse/distribution effective rent growth
Goods export growth
Goods import growth
By Victor Calanog and Barbara Byrne Denham
Growth in Warehouse/Distribution Occupancy,
Employment, Rent and the Goods Trade
Barbara Byrne Denham is an econ-
omist in the research and economics
department at Reis Inc. She previously
served as chief economist at Eastern
Consolidated and is a Ph. D. candidate
at New York University, where she
has studied economics, monetary
theory and game theory. Reach her
Victor Calanog is chief economist
and senior vice president for research
at Reis Inc. ( www.reis.com). He writes
a monthly column on property types
for Scotsman Guide. Calanog and his
team of economists are responsible
for data models, forecasting, valuation
and portfolio services for clients in
commercial real estate. Reach him