Industrial real estate expansion continued in 2015, expanding now for 23 consecutive quarters. In the United States, the growth has been bolstered by personal consumption and broad, yet softening, overall confidence. Because of a two-to-one ratio in new demand versus supply of warehouse space, rents will continue to grow by more than 5 percent, and some 175 million square feet of new deliveries are underway. What might lie ahead: More of the same, or a market correction?
2016 looks to provide steady growth across domestic markets, led by the red-hot Los Angeles basin. Despite West Coast port disruptions and supply chain backlogs, the region will continue to dominate both port activity and subsequent warehouse supply and demand. An area of steady and encouraging growth will be in manufacturing throughout North America. A heightened focus on network efficiencies will continue, given the 15 percent-plus growth in e-commerce sales. Additionally, “last-mile facilities” will sprout everywhere from New York and Paris to Singapore and across major population clusters, putting both operational and pricing pressure on supply chains.
A potential area of change will be the slackening of speculative construction in major markets after a consistent five-year run. In part, this is due to global trade concerns along with general risk management by the capital sources. With construction lead times of 12 months for new deliveries, I expect the first quarter of 2016 to show considerably fewer starts as the market begins to correct a heavy speculative expansion trend.
Global trade and consumer spending directly drive the health of industrial real estate. With China and Japan’s economic corrections, domestic markets will continue to prevail, yet at a slower rate. The supply-demand balance is also impacted by the service-cost balance curve that has been over-weighted by demanding consumers. With these headwinds in play, 2016 will look and feel like a leaner, but healthy, 2015.
Blaine Kelley, Senior Vice President, Global Supply Chain Practice, CBRE