By Margaret Jackson / NewsBreak Denver
(Denver, Colo.) Disruptions in the global supply chain resulting from the COVID-19 pandemic shifted have changed the way logistics companies deliver goods to consumers.
Before the pandemic, companies were able to rely on what the logistics industry refers to as “just-in-time” inventory management in which goods are received from suppliers only as they are needed.
But with shortages and transportation disruptions created by the pandemic, that’s changed to a “just-in-case” system in which companies keep goods on hand to minimize the likelihood that a product will be out of stock.
“The pandemic is really putting a big strain on the supply chain and transportation network,” said Todd Witty, senior vice president of CBRE’s industrial and logistics group. “It used to be you could serve Denver from Dallas and order product for just-in-time delivery. Now, not only do you have trouble getting the product, you have trouble getting a freight line to carry it to Denver.”
That’s dramatically altered the industrial real estate market in Denver and across the country, pushing lease rates substantially higher.
High demand for industrial space, which has a vacancy rate of 5.5%, has pushed rents up 19% year-over-year to $7.78 per square foot. It’s also prompted a flurry of construction activity, with 9.3 million square feet underway — a 13.1% increase year-over-year.
“The big thing we’re going to see that’s going to be shocking is just how much rents are growing and the impact inflation is having,” Witty said.
Tenants expect rent increases at the rate of inflation, or about 3% per year. But with the annual inflation rate in the U.S. accelerating to 8.5% in March, rents are increasing at a higher rate.
“That trend will only continue as space gets tight and there are more tenants in the market,” Witty said.