In 2015, the U.S. industrial real estate industry saw the best of the highs and the best of the lows of the last decade. Vacancy was at a record low, and rent growth and sale prices in many industrial property markets exceeded historical peak values — and we don’t see anything on the horizon to challenge this robust environment in 2016. Instead, all indicators point to demand continuing to outpace supply in the coming year.
The big theme in 2015 was offshore capital driving industrial property investment. It accounted for more than $11.5 billion in total industrial real estate investment at the end of the third quarter of 2015, according to JLL research. Big name players such as GLP and GIC made huge investments from overseas. And Prologis and Norges Bank each made multibillion-dollar portfolio acquisitions, showing there is continued appetite for large, class-A industrial buildings leased to credit tenants on long-term leases.
As consumers begin to expect on-demand delivery as a viable option, we will see continued leasing or development of specialized facilities in urban centers. Some retailers are locating mini-distribution centers in high-density neighborhoods, and to support higher-speed local delivery, more than one large retailer has paid higher “office-level” rents to create a network of urban warehouse/retail centers with proximity to FedEx, UPS and USPS hubs. We see this trend in its early stages, and likely to endure.
With e-commerce models continuously evolving, there is a sustained demand for warehouses of 1.0 million square feet or larger, as retailers and distributors continue to refine their strategies for 2016 and beyond. However, we can’t ignore the impact of labor in staffing these “big boxes,” which can house up to 3,000 employees in peak times. This can prove challenging, and is causing an uptick in the desire for a variety of medium-sized buildings in the 500 million- to 700 million-square-foot range.
Craig Meyer, President, Industrial Brokerage Group, Americas, JLL