The inaugural Jones Lang LaSalle Big Box Velocity Index report was released this month showing that demand for large U.S. industrial distribution centers is high and rising. The report was coupled with results from the quarterly industry analyses, including JLL's Q3 2013 Office Outlook, which marked the first time in seven years that the U.S. office market can look more confidently toward 2014 with leasing activity, expansion and pricing picking up at a faster, more sustainable rate across the nation. It heralds a lot of encouraging news for the U.S. markets, with 96.7 million square feet of industrial construction currently underway, nearly half of which is speculative, with an average building size of 360,000 square feet.
The Velocity Index cites five key trends that are shaping the 2013 U.S. Big Box Industrial Market – and creating markets that are winners and losers:
1) WHO: At the top of the list of industries fueling demand include retail, especially e-commerce retail players, and the logistics & distribution and manufacturing sectors. However, 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.
2) WHAT: A resurgence in activity from 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 one 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, 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 are showing strong market conditions, however the Northeast is seeing the majority of activity. Five of the top six industries with space needs are looking in this region with many in the market for spaces in excess of one million square feet. In the Midwest, however, tenant requirements (on a square footage basis) are down by 26% 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 a lucrative market that a mega population offers: an expansive consumer base and an existing, intricate logistics infrastructure," said Aaron Ahlburn, Director of Research, JLL Americas Industrial & Retail. "Larger blocks of functional space are also more readily available here than in the neighbouring 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," said Craig Meyer, President of Industrial, JLL. "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."
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