The availability rate for U.S. industrial real estate declined by less than half of a basis point (bp) – essentially a flat result – in the first quarter as demand for warehouses roughly matched the delivery of newly constructed supply, according to a new report from CBRE.
The modest dip marks 35 consecutive quarters of declining availability, the longest since CBRE started tracking the data in 1988.
Availability of U.S. industrial real estate registered 7.0% in the first quarter, the lowest point since 2000. Over the past year, the availability rate is down 30 bps.
Preliminary data show aggregate net absorption in 55 U.S. markets amounted to 32 million square feet in the first
quarter, matching construction completions of roughly 33 million square feet.
“Net absorption should pick up through the rest of this year in step with the economy,” said CBRE Global Chief Economist Richard Barkham. “We expected a tepid start to the year, due in part to a weaker global economy and stock market turbulence at the end of last year. But the overall picture is a nicely balanced industrial sector, with demand and supply broadly in line.”
Barkham added that the industrial and logistics real estate sector continues to benefit from the ongoing structural shift to ecommerce and continuing healthy levels of consumer spending.
CBRE defines availability as the sum of vacant space plus space that is currently occupied but is otherwise being marketed for use by new tenants.
In the first quarter, CBRE found 30 of U.S. markets registering declines in industrial availability from the previous quarter, 26 reporting increases and 8 markets that remained unchanged.
Hiring Increases In Warehousing
April employment numbers showed a healthy growth in hiring in the warehouse sector.
The U.S. Buereau of Labor Statistics reported the fourth straight month of hiring growth for warehousing, which also includes distribution centers that handle ecommerce fulfillment.
In all, warehousing added almost 70,000 new jobs during the previous 12 months.
However, the bureau announced a revision to its earlier report which shows the trucking industry added 300 positions in March, following its earlier report that the industry had cut 1,200 jobs in March.
Courier and messenger companies also expanded hiring in April, adding 1,000 jobs. On the other hand, trucking company payrolls shrank by 500, registering the first drop in 11 months.
In total, nonfarm payroll employment rose by 263,000 jobs in April, setting a new record that dominated the news headlines. The unemployment rate for April fell to 3.6%, which is the lowest rate recorded since December 1969.
In spite of the mostly good news, the manufacturing sector only managed to create about 5,000 jobs.
The ADP Research Institute, working in collaboration with Moody’s Analytics, reported that private sector nonfarm employment increased by 275,000 jobs in April. These reports are based on actual transactional payroll data gathered by ADP.
“April posted an uptick in growth after the first quarter appeared to signal a moderation following a strong 2018,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “The bulk of the overall growth is with service providers, adding the strongest gain in more than two years.”
Mark Zandi, chief economist of Moody’s Analytics, said, “The job market is holding firm as businesses work hard to fill open positions. The economic soft patch at the start of the year has not materially impacted hiring. “
ELDs Weaken Contractor Status
Data from electronic logging devices used by the trucking industry is now being cited as evidence owner-operators are not independent contractors.
As of 2017, all commercial vehicles operating in interstate commerce were required to have ELDs for the purpose of enforcing federal hours-of- service regulations. Before then, some fleets had required their drivers use electronic on-board recorders (EOBRs) used to monitor drivers’ hours and other behavior on the road.
The goal of ELDs and EOBRs was to eliminate the widespread cheating by drivers when they filled out paper logs to record their hours driving, The ELD mandate has seen HOS violations largely disappear, but also had the effect of reducing driver productivity – a tradeoff most shippers have declared they are willing to embrace.
At the same time, fleet operators found they gained access to technology capable of monitoring the fleet to learn more about drivers’ behavior while complying with state and federal regulations.
Many state legislatures and courts increasingly determine whether a driver is an employee or independent contractor on how much control the fleet operator exerts over that person’s work. The more control, the less likely it is the person will be considered an independent contractor.
The control issue boils down to how much the contractor controls the means and manner of accomplishing the job. Can the drivers turn down assignments? Can they contract to other employers? To what degree does the company control the procedures and practices used by the drivers?
“New technology simply makes it easier for a driver to show trucking company control, even if the driver signed a document identifying him as an independent contractor,” point out Jeremy Schrag and Morgan Simpson, attorneys with law firm Lewis Brisbois Bisgaard & Smith.
Recently, the California Labor Commissioner ruled in favor of 24 truck port drivers who argued that they had been employees, not contractors, granting them a $6 million settlement.
The commissioner concluded that the drayage company retained pervasive control over the operation as a whole, and that the drivers’ services were an integral part of that business. The ruling rested primarily on the finding that the company managed the truck drivers through a dispatch system relying on electronic communication, supporting the finding that the drivers “were functioning as employees rather than as true independent contractors.”
In another case currently on appeal, a district court has affirmed that truckload carrier Swift Transportation Co. misclassified multiple drivers as independent contractors. That court noted the various ways the trucking firm monitored the drivers, including the use of a telematics communication system.
The court further added that the trucking firm had the “ability to know where all drivers are and what their availability is at frequent intervals.” The fact that the trucking firm rarely used its ability to monitor drivers did not seem to carry as much weight as did the fact that the trucking firm could monitor the drivers if it wished to do so.
The availability and use of sophisticated telematics packages may show, in the right (or wrong) set of circumstances, that the trucking fleet is exercising significant control over the owner-operator, observe Schrag and Simpson.
“It is important for trucking firms to understand the relationship between wage and hour litigation and the monitoring capability of telematics packages. Trucking fleets that use sophisticated telematics tracking devices to monitor, assign and check in on independent owner-operator drivers are at a higher risk of an adverse wage and hour decision.”