Warehouse Space is Tightening

Key Observations

• Demand for warehousing & manufacturing space was consistent YoY. Nationwide, the net absorption rate (net change in occupied space) was around 3% lower than Q1 2024. The biggest drop was in the Northeast, which lost over 6 million square feet. Biggest gain was in the South, which netted 16.6 million square feet. But largest percentage gain was in Midwest, which netted over 11.7 million square feet, over three times that of Q1 2024.
• Vacancy rates have been rising gradually in all areas over the past year. Real estate experts are seeing this as a normal balancing trend. But this will be a key number to watch over the next quarter as U.S. companies adjust their manufacturing and warehousing operations in response to tariffs. The space currently in highest demand is any customs bonded warehousing which allows importers to bring goods in ahead of demand and time the release to take advantage of lower tariffs if and when they are adjusted.
• Rental rates have remained flat nationally over the past year. The Northeast remains the most expensive area to store goods and make them. The Midwest is easily the cheapest with both warehousing and manufacturing space renting for 35% less than the national average.

Implications for Trucking

• Expect more freight in lanes close to lowest cost warehousing. This likely means more traffic through the Midwest. But that will depend on fuel pricing. The more expensive diesel is, the more shippers will want to reduce extra moves and will want to stage goods closer to the largest customer bases.
• Warehouse construction starts have been dropping since late 2022. Expect warehouse space to continue to tighten, particularly if higher tariffs increase the cost of construction. If you're in the logistics business, don't wait too long to secure sufficient warehouse space at a reasonable rate.