Industrial Leasing Plunges As Businesses Ponder Post-Pandemic Plans
By Randyl Drummer
CoStar Group
Published: May 1, 2020

Industrial leasing fell to a historic low last week, after a record high in the first quarter, as more businesses paused to assess how the coronavirus pandemic will affect supply chains and warehouse requirements.

Companies signed 350 leases across the United States totaling about 7.4 million square feet during the week ending April 25, the lowest weekly level on record, CoStar managing director and senior economist Abby Corbett said in a new state of the market video.

Even so, industrial real estate is poised to benefit from the increasing adoption of e-commerce by brick-and-mortar businesses and decisions by retailers and manufacturers to store more merchandise and inventory in warehouses as a buffer against future supply disruptions, Corbett said.

Corbett said CoStar data on the companies that are still leasing new distribution space during the pandemic provides a window into future industrial demand after the crisis is over. For example, Target, one the nation's largest retail chains, signed a 1.1 million-square-foot lease for a build-to-suit warehouse in Logan Township, New Jersey. Seattle-based Amazon, the world's largest internet commerce company, has signed18 deals spanning 7.3 million square feet since March.

On the down side, empty warehouses formerly occupied by struggling retailers such as Pier 1 Imports, which filed for Chapter 11 bankruptcy protection in February, could cause industrial vacancy rates to increase. Nonessential retailers and department stores could struggle further after protracted closures during the pandemic have cut deeply into sales.

Another risk is heavy warehouse construction, which has continued during the crisis in most states, Corbett said. Many developers are moving forward with projects without a signed tenant, while others, such as industrial real estate giant Prologis, are taking a more cautious approach. Prologis said recently it expects to stop new speculative development, while continuing to build projects for specific warehouse users.