Fed? Recession? Mega-warehouse activity missed the memo

Despite fears of a recession and the impact of the Federal Reserve’s war on inflation, leases of so-called mega-warehouses — one million or more square feet — hit a record in 2022, with activity expected to remain strong in 2023, according to a forecast published Wednesday by real estate services firm CBRE Group Inc.

According to the company (NYSE: CBRE), megawarehouses accounted for 63 of the top 100 largest leases signed in 2022. The average size of the top 100 leases was 1.07 million square feet, surpassing the previous record of 1.05 million set in 2021, CBRE said.

Of the top 100, 53 were signed by retailers and wholesalers looking to accommodate e-commerce sales growth and hold more inventory to guard against supply chain disruptions, according to CBRE. Third-party logistics providers signed 18 of the top leases, nearly doubling their 2021 activity, CBRE said. E-commerce companies finalized 14 of the top 100 leases, down from 21 in 2021, it said.

The twin imperatives of managing e-commerce expansion and ensuring adequate buffer stock will continue to propel mega-warehouse demand in 2023, even in the face of higher interest rates and an expected downturn, John Morris, president of Americas industrial & logistics for CBRE, said in a statement.

Despite the higher cost of capital, there will still be a large number of big warehouse construction completions this year, Morris said.

As might be expected, Southern California’s Inland Empire, the nation’s largest warehousing region, led the way last year with 17 of the top 100 largest leases totaling 20.9 million square feet, according to CBRE data. It was followed by Chicago, the nation’s second-largest logistics warehousing center, with 11. Atlanta came in third with eight.