2014 was the year of the “big-box” as demand for large-scale warehouses (500,000 square feet or more) reached its highest level in seven years. In fact, as this goes to print, there are 60 tenants looking for big-box warehouses of 1 million square feet, and there are only 22 ready-to-go blocks of space that fit this specification. Two-thirds of this demand is in the large-scale logistics markets of Southern California, Dallas/Fort Worth, Chicago, New Jersey, Philadelphia/Harrisburg and Atlanta. Demand is outweighing immediate, available sites by nearly 3 to 1.
What’s behind this? The retailers, e-commerce companies and the consumers they serve are driving nearly 40 percent of all industrial real estate demand. The warehouses, return centers and other supply chain facilities that make instant (or same-day) gratification possible are becoming more sophisticated — and more expensive. The headline for 2015, therefore, is act decisively as prime warehouse space is going fast — and rents are rising.
As congestion and risk grow in the West, East Coast ports will provide viable alternatives. Congestion at major West Coast seaports and the impending truck driver shortage has supply chain executives seeking strategies to avoid interruptions, and they are moving discretionary shipments to East Coast ports. Although several East Coast ports are in the midst of enhancing their infrastructure to accommodate post-Panamax ships, those ports — both large and small — with direct access to major population centers are benefiting. Savannah, for instance, has on-dock rail connections to Atlanta’s industrial market, where net absorption in the first half of 2014 surpassed all of 2013, with 7.7 million square feet.
New construction will be measured; anticipate competition for space in new properties. With growing institutional and public ownership of industrial real estate, capital spending for new speculative distribution centers will continue to be disciplined in 2015. We estimate construction deliveries will reach 170 million square feet, numbers last seen in 2005. While this cycle is high, it’s still below the historical average. Nearly 49 percent of the nation’s current 142.5 million square feet of construction activity is concentrated in the nation’s six, large-scale logistics markets, where hyper-efficient facilities measuring 1 million to 2 million square feet are beginning to “sit on every corner,” supporting delivery service commitments in major cities.
Craig Meyer, President of Industrial Brokerage, Jones Lang LaSalle