There is evidence that larger warehouses are outperforming smaller assets in this environment, both in terms of demand and supply fundamentals. Although the smaller warehouse category (buildings less than 250,000 square feet in size) makes up a greater percentage of the national warehouse stock, larger warehouses (greater than or equal to 400,000 square feet in size) have grown due to the emergence of import growth since China joined the World Trade Organization in 2001.

The data show that the amount of new industrial space under construction will hit historically low levels through 2010. In fact the pace of development is expected to slow to such a degree that the amount of supply over the next two years will be roughly equivalent to what we saw during the early 1990s. The previous minimum for industrial development occurred in 1993 when stock grew by just 0.7%.

The TWR/Dodge Pipeline product allows analysis of warehouse buildings in the pre-planning and bidding phase, as well as projects that are being deferred. The data show that there has been an increase in the amount of deferred warehouse projects nationwide since 2007. In 2007, there were a total of 358 deferred warehouse projects. With the onset of the recession, and the intensification of the financial crisis in 2008, the number of deferred projects nearly doubled. The trend is continuing this year as 302 projects have been deferred during the first quarter of 2009 alone. The markets that are leading the way with deferred projects includes many markets that have been disproportionately affected by the housing crisis, such as Phoenix, Orlando, Riverside, Jacksonville, and Las Vegas. Not surprisingly Detroit, which is experiencing unprecedented hardship with the failure of GM and Chrysler, has a substantial number of projects on hold. The one common theme among these markets is that they are among the hardest hit metro areas in this recession.

There is currently 66 million square feet (msf) of industrial space under construction and slated to come online through 2010. Of this nearly half are at least 400,000 square feet (sqft). With many new larger buildings moving forward and being completed, this implies that many of the projects currently being deferred are smaller buildings. This stands to reason as the large warehouse size category has outperformed in terms of net absorption. Comparing net absorption rates, both categories peaked in 2005 when the national industrial market was well into an expansion phase. Since the onset of the financial crisis, however, demand has fallen off precipitously for smaller warehouse buildings, which have experienced negative net absorption since the second quarter of 2008. Demand for the larger buildings just turned negative in the first quarter of 2009, with 3 msf of negative net absorption, compared to 49 msf for smaller warehouses, which has accounted for 83% of the decline in overall warehouse net absorption during the first quarter.
 
The difference in performance of smaller versus larger warehouse buildings could be due to the mere fact that larger buildings take longer to build and are harder to abandon once in the start phase, or that many are owner-occupied, single-tenant. It also suggests that many larger buildings are still being completed due to the anticipation that when global trade recovers there will be demand for larger warehouse space. Either way, new industrial supply is anticipated to fall to record lows over the next couple of years and the smaller warehouse category is suffering more in terms of negative net absorption.