Tariffs Are Shaking Warehouses: What’s Next for Rents?

Warehouses and distribution centers might not have the glamour of downtown skyscrapers, but they're where the real economic action is happening right now. The industrial real estate sector has transformed from a quiet corner of the economy into a turbulent battleground where global trade policies collide with local market realities in fascinating ways.

The numbers tell a remarkable story. Tariff uncertainty has created wild swings in import volumes, with the Port of Los Angeles seeing cargo volumes 25% below expectations and job postings in warehousing cut in half. Yet industrial rents continue climbing nationally at 6.3% year-over-year. Miami stands as the extraordinary outlier, with rents soaring 9.8% annually and new leases commanding an eye-popping $16.54 per square foot – nearly $4 above the market average. This premium reflects Miami's perfect storm of high demand and severely constrained supply.

Perhaps most telling is what's not happening: new construction has hit its lowest level in a decade. Despite strong rent growth, developers are tapping the brakes due to a triple threat of tariff uncertainty making companies hesitant to sign long-term leases, stubbornly high interest rates, and the 50% tariff on imported steel dramatically raising construction costs. This pullback could create structural supply tightness for years. Meanwhile, companies are getting creative – reviving old-school solutions like bonded warehouses to delay tariff payments while focusing on automation and efficiency rather than simply adding headcount. The winners in this rapidly changing landscape will be those who can pivot quickly, invest smartly, and keep a vigilant eye on the policy horizon. How might these same forces be reshaping other sectors you care about?

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Episode Transcript

Speaker 1 (00:00):
You know, when most people think about real estate,
their mind probably jumps toflashy apartments, maybe
downtown office towers.

Speaker 2 (00:08):
Sure the glamorous stuff.

Speaker 1 (00:09):
Exactly.
But what about, like theworkhorses, the industrial
warehouses, distribution centers?
They often feel like this quietcorner of the economy.
Usually overlooked, but rightnow that sector is well anything
but quiet.
It's incredibly dynamic, almostturbulent, I'd say.
You've got global economicsclashing with local markets in

(00:31):
some really fascinating ways.

Speaker 2 (00:33):
Absolutely.
It's where a lot of the actionis economically speaking.

Speaker 1 (00:36):
So today, that's what we're diving into industrial
real estate, specifically howthings like tariffs and global
trade policies are sending theseshockwaves through the whole
system.

Speaker 2 (00:47):
Right, Affecting everything from port activity
right down to.
You know, the rent companiesare paying.

Speaker 1 (00:52):
Our mission here is really to pull out the key
nuggets from recent reports.
Recent data give you a shortcutto understanding why you should
maybe be paying attention tothis sector.
What's happening under thesurface?

Speaker 2 (01:03):
And what it means right for companies, for
investors, even for the stuffyou buy.

Speaker 1 (01:07):
Yeah, exactly.
So hopefully you'll get somesurprising facts, maybe a
clearer picture of some prettycomplex trends.
We're aiming for those ahamoments about this really
crucial part of the economy that, like we said, often gets
missed.

Speaker 2 (01:21):
Sounds good.
Where should we start?

Speaker 1 (01:23):
Okay, let's unpack the immediate stuff.
First, the tariff uncertainty.
We've seen some pretty wildswings in import volumes lately.

Speaker 2 (01:32):
We certainly have.

Speaker 1 (01:33):
Like in April, imports dropped almost 20% month
over month, which makes sense,right, Because it came just
after companies werefront-loading everything in the
first quarter.

Speaker 2 (01:42):
Trying to beat the deadlines.

Speaker 1 (01:43):
Rushing goods in before new tariffs hit.
So, with these big swings,what's the real one-world effect
?
What are companies actuallyseeing on the ground?
Is it immediate ripples?

Speaker 2 (01:53):
Oh, it's immediate and quite tangible.
Take the Port of Los Angeles.
Their cargo volumes in May wereget this 25% below what they
expected.

Speaker 1 (02:02):
Wow 25%.

Speaker 2 (02:03):
Yeah, and maybe even more striking job postings,
specifically in warehousing andstorage, cut in half.

Speaker 1 (02:10):
Cut in half.
That's huge.

Speaker 2 (02:17):
It really is a direct consequence, but then it gets
more complicated.
You had that massive 135%potential tariff on Chinese
imports.

Speaker 1 (02:21):
When they paused for 90 days back in mid-May.

Speaker 2 (02:23):
That's the one.
Well, that pause triggeredanother rush Companies
scrambling again trying to getgoods in before that pause
possibly expires.

Speaker 1 (02:31):
So another wave of front-loading.

Speaker 2 (02:33):
Exactly, which could mean this summer's holiday
import season might be one ofthe biggest we've seen in years.
It just highlights the corequestion for businesses how on
earth do you plan in this kindof environment?
It's incredibly unpredictable.

Speaker 1 (02:47):
Yeah, navigating that volatility must be a nightmare.

Speaker 2 (02:50):
So okay, with all that chaos, companies must be
desperately looking for somestability, right?
Are we seeing any?
Maybe unexpected strategies,even old-fashioned ones maybe?

Speaker 1 (02:59):
We are actually, and it's fascinating Some companies
are turning back to somethingcalled bonded warehouses.

Speaker 2 (03:04):
Bonded warehouses.
Okay, what are those exactly?
Sounds a bit old school.
It kind of is.
Yeah, but it's making acomeback.
Basically, they're facilitieswhere you can store imported
goods without paying the dutieson them, not until you actually
release them into the domesticmarket.

Speaker 1 (03:18):
Ah, ok, so you delay the tariff payment.

Speaker 2 (03:20):
Precisely, and interest in these spaces it's
rising sharply, yeah.
Delay the tariff payment?
Precisely, and interest inthese spaces, it's rising
sharply, yeah.
Now, it's not easy to convert aregular warehouse into a bonded
one.
It's expensive, it's slow, lotsof paperwork.
I can imagine.
But the strategic advantage ispretty clear.
Think about it If the tariffseventually drop great, you
release your goods at the lowerrate, right.

(03:46):
If they stay high or go up, youcan sort of drip feed your
inventory into the market,smooth out those cost pressures
over time.

Speaker 1 (03:49):
So it buys you flexibility.

Speaker 2 (03:51):
Exactly Flexibility.
It's a really starkillustration that you know, in
today's trade environment,agility isn't just nice to have,
it's basically the cost ofstaying competitive.

Speaker 1 (04:01):
That's a really powerful point about agility.
Ok, so companies are tryingthese strategies to manage
imports.
How is all this affectingindustrial rents?
Are they holding up?

Speaker 2 (04:09):
They are Nationally.
The average rent for industrialspace hit $8.54 per square foot
back in May.
That's up 6.3% from the yearbefore.
Pretty solid growth.

Speaker 1 (04:19):
Okay, 6.3% national growth, decent.
But then there's Miami.

Speaker 2 (04:24):
Ah yes, Miami is really in a league of its own
right now.

Speaker 1 (04:27):
Tell me about it.
The numbers look kind ofstaggering.

Speaker 2 (04:29):
They really are standout figures.
Rents there soared 9.8% overthe last 12 months.

Speaker 1 (04:34):
Nearly 10%.

Speaker 2 (04:35):
Yeah, reaching an average of $12.72 per square
foot.
But here's the kicker Newleases being signed in Miami.
They're commanding a huge$16.54 per square foot $16.54.

Speaker 1 (04:49):
Wow, that's what?
Almost $4 higher than theaverage.

Speaker 2 (04:51):
It's a $3.82-pound rainbow Massive and it makes you
ask you know why Miami?
It's not even in the top 10 USports for container volume.

Speaker 1 (04:58):
Right, that's the surprising part.
So what's driving it?

Speaker 2 (05:01):
Well, you have to look at the bigger picture.
It's a key strategic gatewayfor trade with Latin America and
the Caribbean.
That's one piece.

Speaker 1 (05:07):
Okay, the geography.

Speaker 2 (05:08):
Then there's its international airport, which is
significant for cargo Plus.
Florida's population is booming, driving local demand.
And maybe the most criticalfactor, Scarcity of land.
There's just very littleavailable land for new
industrial development downthere.

Speaker 1 (05:22):
Ah, the classic squeeze.
Little available land for newindustrial development down
there.

Speaker 2 (05:24):
Ah, the classic squeeze.
Exactly so.
Miami's story isn't some weirdanomaly.
It's a perfect storm Reallyhigh, sustained demand crashing
into really tight supplyconstraints.

Speaker 1 (05:37):
That's what ignites that kind of unprecedented
market heat, high demand, tightsupply the age-old story, but
supercharged here.
Is there any scenario whereMiami's growth could like hit a
wall?

Speaker 2 (05:48):
Yeah.

Speaker 1 (05:48):
What are the risks for someone looking at those
numbers?

Speaker 2 (05:51):
Well, I mean, the biggest risks are always a
sudden drop in demand or asudden flood of new supply, but
for Miami neither seems verylikely in the near term.

Speaker 1 (06:00):
Because of those factors you mentioned.

Speaker 2 (06:01):
Right, the geography, the population growth and
especially that land constraint.
It's a pretty hard physicallimit.
It puts sort of floor underthings, at least for now.

Speaker 1 (06:09):
Okay, that makes sense.
So with rents like that, notjust in Miami but growing
nationally too, you'd normallyexpect developers to be, you
know, rushing to build morewarehouses everywhere, right?

Speaker 2 (06:19):
You would think so.
It seems logical.

Speaker 1 (06:21):
But the data on new supply?
It tells a very different story, a kind of concerning one.
Actually.

Speaker 2 (06:27):
It really does.
Only about 86.9 million squarefeet of new industrial projects
actually broke ground this yearthrough May.

Speaker 1 (06:35):
Okay, is that low?

Speaker 2 (06:37):
It's the lowest level of new starts we've seen in the
past 10 years 10 years Wow.

Speaker 1 (06:41):
So why are developers holding back when rents are
strong?

Speaker 2 (06:45):
Well, there are a few critical reasons stacking up.
First, back to our earlierpoint, that tariff uncertainty.
It's making companies hesitantto commit to long-term leases.
That delays projects.

Speaker 1 (06:55):
Okay, leasing uncertainty, what else?

Speaker 2 (06:57):
Second interest rates .
Everyone expected more cutsthan we've gotten right.
So construction loan costsstill stubbornly high makes
financing new builds moreexpensive.

Speaker 1 (07:07):
Right the cost of borrowing.

Speaker 2 (07:08):
And then, critically, there's a specific tariff
impact, that 50% tariff onimported steel.

Speaker 1 (07:15):
Ugh steel.

Speaker 2 (07:16):
Crucial for construction.

Speaker 1 (07:17):
Hugely important for industrial buildings, so that
tariff sent material costssoaring.
Put all that together leasingdelays, high financing costs,
expensive steel and developersare just tapping the brakes.

Speaker 2 (07:31):
So the pipeline is squeezing shut.

Speaker 1 (07:32):
Pretty much, and what's really remarkable here,
or maybe concerning, is thateven if demand cools off a bit
in some markets, this lack ofnew projects coming online could
keep overall supply tight foryears.
It creates a sort of structuraltightness.

Speaker 2 (07:48):
That's a lot to digest, especially thinking
about the long-term impact ofthings like those steel tariffs.
Ari, let's shift slightly tothe labor market within this
sector, because there seems tobe a bit of a paradox happening.

Speaker 1 (07:59):
How so.

Speaker 2 (07:59):
Well, warehousing and storage jobs actually fell by
about 5,100 in May.
That's down 1.2% year over year.

Speaker 1 (08:06):
Okay, a slight dip.

Speaker 2 (08:07):
But at the same time, the sector is still way bigger
than before the pandemic like42% larger and wages have jumped
14% in just the last threeyears.
So fewer jobs month to month,but bigger overall and higher
pay.
Yeah, what's going on?
Yeah, it does seemcontradictory on the surface,
but it points towards efficiencygains.
Really, Companies aren't justrushing to hire bodies anymore.

Speaker 1 (08:27):
They're focusing elsewhere.

Speaker 2 (08:28):
They're intensely focused on automation, on
optimizing workflows, gettingmore output with perhaps a
leaner but more skilledworkforce.
So productivity is the keyExactly.
They can weather economicuncertainty better that way.
Yeah, Maintain capacity, and itexplains the wage jump too.
They're paying more for thosefewer but highly productive

(08:50):
skilled workers they do need.
It's like that old saying worksmarter, not harder.

Speaker 1 (08:54):
Companies are really living that right now, it seems.

Speaker 2 (08:57):
They have to and, Interestingly, this focus on
efficiency, this uncertainty.
It hasn't killed investmentappetite.

Speaker 1 (09:04):
Oh really, so deals are still happening.

Speaker 2 (09:06):
Definitely.
From January through May, about$21.4 billion worth of
industrial properties tradedhands across the country $21
billion.

Speaker 1 (09:14):
Okay, what's the average price?

Speaker 2 (09:16):
look like Averaging about $133 per square foot, but
it's interesting to look atspecific markets again, like
Phoenix.

Speaker 1 (09:23):
Phoenix what's happening there?
Well, it's interesting to lookat specific markets again, like
Phoenix.
Phoenix what's happening there?

Speaker 2 (09:25):
Well, it's only the 10th largest market by overall
size, right, but it really stoodout in sales volume about $862
million just in those first fivemonths.
Wow.

Speaker 1 (09:35):
Punching above its weight.

Speaker 2 (09:36):
Exactly, and prices there surged 24% just since 2023
.

Speaker 1 (09:41):
24%.
Why Phoenix?

Speaker 2 (09:43):
It really comes down to its established role as a
major logistics andmanufacturing hub, especially
for the Southwest.
It has consistently highabsorption rates, meaning space
gets leased up quickly.
Even though there's been a lotof new construction delivered
there recently, Demand justkeeps soaking it up.

Speaker 1 (10:00):
So a strong, resilient hub.

Speaker 2 (10:02):
That's the picture.
Yeah, Strong fundamentals keepattracting investor dollars,
even with broader economicquestions swirling.

Speaker 1 (10:09):
So OK, let's try and tie this all together.
What does this complex picturemean for you, our listener?

Speaker 2 (10:14):
Well, I think the big takeaway is that industrial
real estate is definitely notthat quiet corner anymore.
Not at all.

Speaker 1 (10:20):
Right, it's really become this critical
intersection point.

Speaker 2 (10:28):
You've got global trade policy slamming into local
market dynamics Exactly.
You see supply chain strategiesliterally reshaping city
skylines with these massive newwarehouses.
Yeah, and investor appetite isstill strong even with all the
uncertainty we've talked about.

Speaker 1 (10:37):
It really underscores how interconnected everything
is.

Speaker 2 (10:40):
It does.
And maybe, you know, ifsurvival really does favor the
adaptable, like Darwin suggested, then the winners in this
rapidly changing industrial realestate landscape they're going
to be the ones who can pivotquickly, who invest smartly.

Speaker 1 (10:55):
And keep a very close eye on that policy horizon.

Speaker 2 (10:57):
Constantly watching the policy horizon.
So maybe a final thought foryou to consider is how might
this dynamic, this interplay ofglobal policy, local constraints
and the need for agility, howmight that play out in other
sectors that you follow?
Where else are we seeing theseforces collide?