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 are retail, especially e-commerce retail players, and the logistics and 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 JLL's Industrial President Craig Meyer. "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 under way.
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."
Source: Jones Lang LaSalle
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