Sticker Shock Awaits Warehouse Tenants During Lease Renewals

Warehouse occupiers will face double-digit rent increases in the coming months and well into 2022 for renewing their leases or moving to new space, according to a recent report by CBRE.

Rents in the logistics sector are expected to surge on average of 25 percent higher because tenants either have to renew their leases or move to a new space. 

“Many markets will see even higher increases. An occupier with a five-year lease expiring in Central New Jersey will see the biggest average increase in the U.S. at 64%, followed by Philadelphia and the Inland Empire at 62%. California markets dominate five-year rent growth due to low vacancy rates and large population concentrations.”, stated the report.

An occupier with a 10-year lease expiring today can expect even steeper rent increases. Industrial market conditions favored occupiers in 2011, when the overall vacancy rate stood 5.1 points higher at 8.7%. Asking rents in 2011 were 67% lower than today, with much smaller annual rent escalations. Overall, occupiers may face rent increases of between 65% and 75% compared with the lease they signed in 2011.

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Note: Based on a five-year lease signed in 2016 with 3% annual increases.
Source: CBRE Research, CBRE Econometric Advisors.