CHICAGO — Nationwide demand for industrial distribution centers larger than 300,000 square feet — known as big-box space — is high and rising, according to the first “Big Box Outlook Report” published by Jones Lang LaSalle (JLL). Improving economic conditions, the continuing growth of e-commerce and a deep bench of tenants seeking space have created competition for warehousing space.
Consequently, there is 96.7 million square feet of industrial construction underway, nearly half of it speculative, with an average building size of 360,000 square feet. The JLL Big Box Outlook Report featuring the Velocity Index cites five key trends that are shaping the industrial big box market in 2013 — and creating markets that are winners and losers.
1. WHO: At the top of the list of industries fueling demand is retail, especially e-commerce retail players, followed by the logistics, distribution and manufacturing sectors. Retail (traditional retailers through consumer non-durables) accounts for more than one-third of total demand, with most concentrated in the Northeast — particularly New Jersey and Philadelphia.
“With e-commerce sales expected to more than double over the next four years, we anticipate increasing demand for highly specialized facilities,” says Craig Meyer, president of industrial brokerage at JLL. “We are seeing a number of major retailers in the market looking for mega-fulfillment centers of more than two million square feet near large population centers — especially in the major logistics markets of Pennsylvania, New Jersey, Atlanta, Chicago and, of course, the Inland Empire.”
2. WHAT: A resurgence in activity of distribution space users has manifested in rising demand in two primary categories:the 250,000- to 499,999-square-foot range, and in facilities of more than 1 million square feet. Together these two categories comprise more than half of the requirements from tenants in the marketplace.
3. WHEN: There have been 14 consecutive quarters of positive net absorption nationally, bringing vacancy rates down. Construction activity began to increase during the first half of 2012, and much of this stemmed from committals prior to groundbreakings. More speculative development is currently underway.
4. WHERE:Traditional distribution corridors nationwide are showing strong market conditions, but the Northeast is seeing the majority of activity. Five of the top six industries with space needs are looking in this region, with many companies seekingspaces in excess of 1 million square feet. In the Midwest, however, tenant requirements on a square footage basis are down by 26 percent, owing to robust leasing activity in quarters past.
“The Northeast is home to 55 million people, and this is appealing to retail distributors that want access to the lucrative market that a mega-population offers: an expansive consumer base and an existing, intricate logistics infrastructure,” says Aaron Ahlburn, director of research for JLL Americas Industrial & Retail. “Larger blocks of functional space are also more readily available here than in the neighboring Midwest, meaning tenants in New Jersey have more choice as opposed to facing competition for fewer large space options in Chicago.”
5. WHY: “It’s no surprise that the retail sector comprises more than a third of our growth,” observes Meyer. “The demand from e-commerce is shaping the market more than ever before and is influencing the requirements of both users and the institutional investors who make speculative construction possible.”
— Staff Report