What’s that big building going up in your neighborhood? Odds are it’s a warehouse.
Nationally and locally, demand for warehouse space has been high. In the Portland metro area, vacancy rates for industrial space has declined and lease rates have gone up. This has encouraged developers to build even more facilities here.
Vancouver is attractive to warehouse developers, who are seeking to be closer to urban centers than they used to be. Clark County offers close proximity to highways and amenities, Bjorn Brynestad, development manager at Panattoni Development Company, previously told The Columbian.
Seattle-based Thermal Supply is joining the growing number of companies who have acquired warehouse space here in Clark County.
The company, which is a wholesaler of refrigeration, heating and air conditioning equipment, parts and supplies, signed a lease for 170,089 square feet at Panattoni Development Company’s Vancouver Logistics at 9013 N.E. 72nd Ave., which was completed in September.
“We are very excited for this new location,” said J.R. de la Cruz, division vice president at Daikin Comfort Technology, the parent company of Thermal Supply.
Vancouver, he told The Columbian, is centrally located for the business, which operates throughout the Pacific Northwest. The central location will allow Thermal Supply to better serve its customers.
According to data from the city of Vancouver, there are 40 distribution warehouses and approximately 360 storage warehouses inside the city limits. Several more have been proposed, with one hot spot south of Northeast Fourth Plain Boulevard and west of Northeast 162nd Avenue. Amazon has also filed plans for several vacant parcels in that area.
California-based Panattoni Development Company is planning a number of the proposed warehouses.
Brenda Fodge, development manager at Panattoni, said the company has a strong interest in Clark County.
The overall Vancouver and Portland market has low vacancy rates and continued demand for Class A industrial space, Fodge said in an email to The Columbian.
Class A industrial buildings are generally considered the newest and most state-of-the-art buildings on the market, with attractive interiors and exteriors. Thus, they’re the most sought-after by tenants and bring the highest rents to landlords.
Panattoni recognizes that the economy may temper demand for industrial warehouse space in the near term but is focused ahead.
“With on-shoring of inventory to meet tenant/consumer demands, we must look forward in anticipation of future needs,” wrote Fodge.
Low vacancy rates
Low vacancy rates are part of the reason that developers like Panattoni are looking to build warehouses in Clark County. And that rate has been decreasing.
Direct vacancy rates for industrial spaces in the Portland market decreased from 4 percent in the third quarter of last year to 3 percent the same time this year, according to the latest Portland-area commercial real estate market update from Kidder Mathews.
Meanwhile, lease rates grew 17.31 percent since last year, and sales volume grew by 62.6 percent to 2.28 million square feet.
“The industrial market remains strong with extremely limited supply,” reads the update. The report predicts that increased interest rates may slow new speculative development, like that done by Panattoni, further limiting supply.
Fodge said that developers such as Panattoni have faced challenges getting through cities’ permitting processes. So weighing the risks and creating a pipeline of projects is the company’s plan.
“Without taking those risks, the tenant needs and family-wage jobs may never be filled,” said Fodge.
Warehouses can be used differently, with some operating as distribution centers and others as simply warehouse space. The wages paid by these industries differ.
In the warehouse industry, the average annual wage in 2021 was $53,000 in Clark County. The average annual wage in wholesale trade, meanwhile, was $96,000, according to the Employment Security Department. The average annual wage in the county was $65,000.
While warehouse jobs may offer above-average pay, there generally aren’t many employees. Warehouses offer fewer jobs per square foot than other types of buildings, according to Scott Bailey, the Employment Security Department’s regional economist.
And, “It’s gotten lower because of automation that’s come in with warehouses,” he added.
In 2021, there were 336 jobs in warehousing and storage locally, according to the department.
Part of a trend
Nationally the picture is much the same. But there are also signs the warehouse demand may be peaking.
There are a number of reasons for this, says Hany Guirguis, professor of economics and finance at the O’Malley School of Business and one of the authors of the Industrial Space Demand Forecast from the NAIOP Commercial Real Estate Development Association.
During the pandemic, demand for warehouses skyrocketed.
It was the first time in Guirguis’ memory that demand for warehouses went up during a recession.
“That’s unheard of,” he said. As people were prevented from going shopping in person, they began spending their money online.
“With this comes stronger demand for warehouses,” he said. But that wasn’t the only driver. Globally, the supply chain became less reliable. An absence of cargo ships meant goods couldn’t get to consumers. Not only that, but companies also began paying up to five times as much for transportation costs, said Guirguis. Storing goods domestically in warehouses became an appealing alternative.
“These were trends prior to COVID and both were accelerated,” said Fodge. “We expect them to continue to be factors moving forward.”
There are signs the economy is returning to normal. There’s less pressure on global supply chains, increasing inventory carrying costs. The economy is cooling, perhaps falling into recession, and e-commerce isn’t expanding as fast. This means retailers and logistics firms have slowed their acquisition of industrial space.
The Federal Reserve Bank of New York’s supply chain pressure index decreased to 1.05, down from 4.3 in December 2021. And people have less time to shop.
“Our consumption almost overshot long-term trends,” said Guirguis.
“We will continue to see demand for warehouses, but we will never see as much growth as we did in recent years,” he said.