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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Chapters

• 0:00 Industrial Real Estate: Hidden Economic Force
• 2:16 Tariff Uncertainty and Port Impacts
• 3:50 Bonded Warehouses: Old Strategy Revived
• 5:00 Miami's Exceptional Industrial Rent Growth
• 6:55 Developers Hit Brakes Despite High Demand
• 8:50 Labor Market Shifts and Investment Trends
• 11:00 Key Takeaways and Final Thoughts

Transcript

Speaker 1: 0:25

You know, when most people think about real estate, their mind probably jumps to flashy apartments, maybe downtown office towers.

Speaker 2: 0:34

Sure the glamorous stuff.

Speaker 1: 0:35

Exactly. But what about, like the workhorses, the industrial warehouses, distribution centers? They often feel like this quiet corner of the economy. Usually overlooked, but right now that sector is well anything but quiet. It's incredibly dynamic, almost turbulent, I'd say. You've got global economics clashing with local markets in some really fascinating ways.

Speaker 2: 0:59

Absolutely. It's where a lot of the action is economically speaking.

Speaker 1: 1:02

So today, that's what we're diving into industrial real estate, specifically how things like tariffs and global trade policies are sending these shockwaves through the whole system.

Speaker 2: 1:13

Right, Affecting everything from port activity right down to. You know, the rent companies are paying.

Speaker 1: 1:17

Our mission here is really to pull out the key nuggets from recent reports. Recent data give you a shortcut to understanding why you should maybe be paying attention to this sector. What's happening under the surface?

Speaker 2: 1:29

And what it means right for companies, for investors, even for the stuff you buy.

Speaker 1: 1:33

Yeah, exactly. So hopefully you'll get some surprising facts, maybe a clearer picture of some pretty complex trends. We're aiming for those aha moments about this really crucial part of the economy that, like we said, often gets missed.

Speaker 2: 1:47

Sounds good. Where should we start?

Speaker 1: 1:49

Okay, let's unpack the immediate stuff. First, the tariff uncertainty. We've seen some pretty wild swings in import volumes lately.

Speaker 2: 1:58

We certainly have.

Speaker 1: 1:58

Like in April, imports dropped almost 20% month over month, which makes sense, right, Because it came just after companies were front-loading everything in the first quarter.

Speaker 2: 2:08

Trying to beat the deadlines.

Speaker 1: 2:09

Rushing goods in before new tariffs hit. So, with these big swings, what's the real one-world effect? What are companies actually seeing on the ground? Is it immediate ripples?

Speaker 2: 2:19

Oh, it's immediate and quite tangible. Take the Port of Los Angeles. Their cargo volumes in May were get this 25% below what they expected.

Speaker 1: 2:28

Wow 25%.

Speaker 2: 2:29

Yeah, and maybe even more striking job postings, specifically in warehousing and storage, cut in half.

Speaker 1: 2:35

Cut in half. That's huge.

Speaker 2: 2:43

It really is a direct consequence, but then it gets more complicated. You had that massive 135% potential tariff on Chinese imports.

Speaker 1: 2:47

When they paused for 90 days back in mid-May.

Speaker 2: 2:49

That's the one. Well, that pause triggered another rush Companies scrambling again trying to get goods in before that pause possibly expires.

Speaker 1: 2:57

So another wave of front-loading.

Speaker 2: 2:59

Exactly, which could mean this summer's holiday import season might be one of the biggest we've seen in years. It just highlights the core question for businesses how on earth do you plan in this kind of environment? It's incredibly unpredictable.

Speaker 1: 3:12

Yeah, navigating that volatility must be a nightmare.

Speaker 2: 3:16

So okay, with all that chaos, companies must be desperately looking for some stability, right? Are we seeing any? Maybe unexpected strategies, even old-fashioned ones maybe?

Speaker 1: 3:25

We are actually, and it's fascinating Some companies are turning back to something called bonded warehouses.

Speaker 2: 3:30

Bonded warehouses. Okay, what are those exactly? Sounds a bit old school. It kind of is. Yeah, but it's making a comeback. Basically, they're facilities where you can store imported goods without paying the duties on them, not until you actually release them into the domestic market.

Speaker 1: 3:44

Ah, ok, so you delay the tariff payment.

Speaker 2: 3:46

Precisely, and interest in these spaces it's rising sharply, yeah. Delay the tariff payment? Precisely, and interest in these spaces, it's rising sharply, yeah. Now, it's not easy to convert a regular warehouse into a bonded one. It's expensive, it's slow, lots of paperwork. I can imagine. But the strategic advantage is pretty clear. Think about it If the tariffs eventually drop great, you release your goods at the lower rate, right. If they stay high or go up, you can sort of drip feed your inventory into the market, smooth out those cost pressures over time.

Speaker 1: 4:15

So it buys you flexibility.

Speaker 2: 4:16

Exactly Flexibility. It's a really stark illustration that you know, in today's trade environment, agility isn't just nice to have, it's basically the cost of staying competitive.

Speaker 1: 4:27

That's a really powerful point about agility. Ok, so companies are trying these strategies to manage imports. How is all this affecting industrial rents? Are they holding up?

Speaker 2: 4:35

They are Nationally. The average rent for industrial space hit $8.54 per square foot back in May. That's up 6.3% from the year before. Pretty solid growth.

Speaker 1: 4:45

Okay, 6.3% national growth, decent. But then there's Miami.

Speaker 2: 4:50

Ah yes, Miami is really in a league of its own right now.

Speaker 1: 4:53

Tell me about it. The numbers look kind of staggering.

Speaker 2: 4:55

They really are standout figures. Rents there soared 9.8% over the last 12 months.

Speaker 1: 5:00

Nearly 10%.

Speaker 2: 5:01

Yeah, reaching an average of $12.72 per square foot. But here's the kicker New leases being signed in Miami. They're commanding a huge $16.54 per square foot $16.54.

Speaker 1: 5:15

Wow, that's what? Almost $4 higher than the average.

Speaker 2: 5:17

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 US ports for container volume.

Speaker 1: 5:24

Right, that's the surprising part. So what's driving it?

Speaker 2: 5:27

Well, you have to look at the bigger picture. It's a key strategic gateway for trade with Latin America and the Caribbean. That's one piece.

Speaker 1: 5:32

Okay, the geography.

Speaker 2: 5:34

Then there's its international airport, which is significant for cargo Plus. Florida's population is booming, driving local demand. And maybe the most critical factor, Scarcity of land. There's just very little available land for new industrial development down there.

Speaker 1: 5:48

Ah, the classic squeeze. Little available land for new industrial development down there.

Speaker 2: 5:50

Ah, the classic squeeze. Exactly so. Miami's story isn't some weird anomaly. It's a perfect storm Really high, sustained demand crashing into really tight supply constraints.

Speaker 1: 6:03

That's what ignites that kind of unprecedented market heat, high demand, tight supply the age-old story, but supercharged here. Is there any scenario where Miami's growth could like hit a wall?

Speaker 2: 6:14

Yeah.

Speaker 1: 6:14

What are the risks for someone looking at those numbers?

Speaker 2: 6:17

Well, I mean, the biggest risks are always a sudden drop in demand or a sudden flood of new supply, but for Miami neither seems very likely in the near term.

Speaker 1: 6:25

Because of those factors you mentioned.

Speaker 2: 6:27

Right, the geography, the population growth and especially that land constraint. It's a pretty hard physical limit. It puts sort of floor under things, at least for now.

Speaker 1: 6:35

Okay, that makes sense. So with rents like that, not just in Miami but growing nationally too, you'd normally expect developers to be, you know, rushing to build more warehouses everywhere, right?

Speaker 2: 6:45

You would think so. It seems logical.

Speaker 1: 6:47

But the data on new supply? It tells a very different story, a kind of concerning one. Actually.

Speaker 2: 6:53

It really does. Only about 86.9 million square feet of new industrial projects actually broke ground this year through May.

Speaker 1: 7:01

Okay, is that low?

Speaker 2: 7:03

It's the lowest level of new starts we've seen in the past 10 years 10 years Wow.

Speaker 1: 7:07

So why are developers holding back when rents are strong?

Speaker 2: 7:10

Well, there are a few critical reasons stacking up. First, back to our earlier point, that tariff uncertainty. It's making companies hesitant to commit to long-term leases. That delays projects.

Speaker 1: 7:21

Okay, leasing uncertainty, what else?

Speaker 2: 7:23

Second interest rates. Everyone expected more cuts than we've gotten right. So construction loan costs still stubbornly high makes financing new builds more expensive.

Speaker 1: 7:32

Right the cost of borrowing.

Speaker 2: 7:34

And then, critically, there's a specific tariff impact, that 50% tariff on imported steel.

Speaker 1: 7:41

Ugh steel.

Speaker 2: 7:42

Crucial for construction.

Speaker 1: 7:43

Hugely important for industrial buildings, so that tariff sent material costs soaring. Put all that together leasing delays, high financing costs, expensive steel and developers are just tapping the brakes.

Speaker 2: 7:56

So the pipeline is squeezing shut.

Speaker 1: 7:58

Pretty much, and what's really remarkable here, or maybe concerning, is that even if demand cools off a bit in some markets, this lack of new projects coming online could keep overall supply tight for years. It creates a sort of structural tightness.

Speaker 2: 8:14

That's a lot to digest, especially thinking about the long-term impact of things like those steel tariffs. Ari, let's shift slightly to the labor market within this sector, because there seems to be a bit of a paradox happening.

Speaker 1: 8:25

How so.

Speaker 2: 8:25

Well, warehousing and storage jobs actually fell by about 5,100 in May. That's down 1.2% year over year.

Speaker 1: 8:32

Okay, a slight dip.

Speaker 2: 8:33

But at the same time, the sector is still way bigger than before the pandemic like 42% larger and wages have jumped 14% in just the last three years. So fewer jobs month to month, but bigger overall and higher pay. Yeah, what's going on? Yeah, it does seem contradictory on the surface, but it points towards efficiency gains. Really, Companies aren't just rushing to hire bodies anymore.

Speaker 1: 8:53

They're focusing elsewhere.

Speaker 2: 8:54

They're intensely focused on automation, on optimizing workflows, getting more output with perhaps a leaner but more skilled workforce. So productivity is the key Exactly. They can weather economic uncertainty better that way. Yeah, Maintain capacity, and it explains the wage jump too. They're paying more for those fewer but highly productive skilled workers they do need. It's like that old saying work smarter, not harder.

Speaker 1: 9:20

Companies are really living that right now, it seems.

Speaker 2: 9:22

They have to and, Interestingly, this focus on efficiency, this uncertainty. It hasn't killed investment appetite.

Speaker 1: 9:30

Oh really, so deals are still happening.

Speaker 2: 9:32

Definitely. From January through May, about $21.4 billion worth of industrial properties traded hands across the country $21 billion.

Speaker 1: 9:40

Okay, what's the average price?

Speaker 2: 9:42

look like Averaging about $133 per square foot, but it's interesting to look at specific markets again, like Phoenix.

Speaker 1: 9:49

Phoenix what's happening there? Well, it's interesting to look at specific markets again, like Phoenix. Phoenix what's happening there?

Speaker 2: 9:51

Well, it's only the 10th largest market by overall size, right, but it really stood out in sales volume about $862 million just in those first five months. Wow.

Speaker 1: 10:01

Punching above its weight.

Speaker 2: 10:02

Exactly, and prices there surged 24% just since 2023.

Speaker 1: 10:07

24%. Why Phoenix?

Speaker 2: 10:09

It really comes down to its established role as a major logistics and manufacturing hub, especially for the Southwest. It has consistently high absorption rates, meaning space gets leased up quickly. Even though there's been a lot of new construction delivered there recently, Demand just keeps soaking it up.

Speaker 1: 10:26

So a strong, resilient hub.

Speaker 2: 10:28

That's the picture. Yeah, Strong fundamentals keep attracting investor dollars, even with broader economic questions swirling.

Speaker 1: 10:35

So OK, let's try and tie this all together. What does this complex picture mean for you, our listener?

Speaker 2: 10:40

Well, I think the big takeaway is that industrial real estate is definitely not that quiet corner anymore. Not at all.

Speaker 1: 10:45

Right, it's really become this critical intersection point.

Speaker 2: 10:54

You've got global trade policy slamming into local market dynamics Exactly. You see supply chain strategies literally reshaping city skylines with these massive new warehouses. Yeah, and investor appetite is still strong even with all the uncertainty we've talked about.

Speaker 1: 11:03

It really underscores how interconnected everything is.

Speaker 2: 11:05

It does. And maybe, you know, if survival really does favor the adaptable, like Darwin suggested, then the winners in this rapidly changing industrial real estate landscape they're going to be the ones who can pivot quickly, who invest smartly.

Speaker 1: 11:20

And keep a very close eye on that policy horizon.

Speaker 2: 11:23

Constantly watching the policy horizon. So maybe a final thought for you to consider is how might this dynamic, this interplay of global policy, local constraints and the need for agility, how might that play out in other sectors that you follow? Where else are we seeing these forces collide?