CHICAGO— According to Jones Lang LaSalle’s (JLL) first Big Box Velocity Index, demand for U.S. industrial distribution centers, larger than 300,000 square feet (known as “big box” space) is high and rising. Improving economic conditions, the continuing growth of e-commerce and a deep bench of tenants seeking space have all created this highly competitive fight for industrial and
warehousing space. As a result, there is 96.7 million square feet of industrial construction underway, with nearly half 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 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.
“With e-commerce sales expected to more than double over the next four years, we anticipate increasing demand for highly specialized facilities,” said Craig Meyer, President of Industrial, JLL. “We are seeing a number of major retailers in the market looking for mega-fulfilment centers more than two million square feet near large population centers – especially in the major logistics markets in Pennsylvania or New Jersey, Atlanta, Chicago and of course, the Inland Empire.”
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 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 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,” 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.”
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About Jones Lang LaSalle
Jones Lang LaSalle (NYSE:JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual revenue of $3.9 billion, Jones Lang LaSalle operates in 70 countries from
more than 1,000 locations worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 2.6 billion square feet and completed $63 billion in sales, acquisitions and finance transactions in 2012. Its investment management business, LaSalle Investment Management, has $46.3 billion of real estate assets under management. For further information, visit www.jll.com.