Red-Hot Warehouse Market Tested as Consumer Spending Slows – The New York Times

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Other industry observers also remain encouraged by the long-term trends buoying warehouses, especially in coastal markets, like Southern California, that are substantially built-out; highly populated, inland transit hubs such as Chicago; and growing markets like Las Vegas. Despite the recent slowdown, e-commerce sales will keep growing as younger people who were weaned on a mobile device become a greater percentage of the population, they say.

Plus, warehouse leasing continues to be driven in large part by light assembly companies, midsize firms, and manufacturers of household products, construction materials and other merchandise, said Peter C. Lewis, president and chairman of Wharton Equity Partners, an investment firm in New York that focuses on real estate.

“We’re clearly bullish about industrial real estate over the next three to 10 years,” he said. But he added that he expected choppiness in the market over the next six months. “We’ve seen rents go up 50 cents a day in a world where for 50 years they went up a penny a year, and as an owner, that’s just unrealistic.”

Even now, experts say, retailers and other tenants are hunting for scarce space after abandoning “just in time” methods that kept inventories slim. Now they’re pursuing a “just in case” strategy to significantly fatten inventories and avoid the type of shortages experienced during the pandemic.

But in some cases, that newer strategy has backfired, and retailers now have too much stuff. In the spring, Target reported excess apparel, kitchen appliances, televisions and outdoor furniture after it failed to anticipate the extent of slowing demand for certain goods once federal stimulus spending stopped. Stumbles at Target and other retailers have been a boon for liquidation warehouses.

This overcorrection is known as the “bullwhip effect,” and it tends to happen in reaction to supply-and-demand disruptions, said Craig Fuller, founder and chief executive of FreightWaves, which provides supply chain markets with data analysis. As a result, freight traffic is down substantially, he said.