Big-Box
Market Report
U.S. Research Report
2020 Midyear Review and Outlook
A variety of factors across North America have impacted demand for big-box industrial facilitiesthrough the first half of 2020. Core markets including the Inland Empire, Dallas-Fort Worth, Atlanta,Chicago, Northern-Central New Jersey, Southern New Jersey-Eastern Pennsylvania and Torontocontinue to be the destination of choice for many occupiers, while emerging secondary markets thatare near the fastest-growing population centers and in close proximity to the most utilized logisticshubs in the region continue to grow.
In this unique interactive report, we examine the North American big-box industrial market in thefirst six months of 2020, which includes the seven core North American big-box markets, as well asnine emerging secondary markets. We will highlight the fundamentals, take a look at demand factorsincluding demographics and logistics capabilities and will assess what lies ahead for 2020 and beyond.
Unless otherwise specified, all report data is through midyear 2020.
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Introduction
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Disclaimer: The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.
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NORTH AMERICA
Overview
Pandemic-induced growing reliance on e-commerce retailers for basic goods, fueled demand for industrial big-box product as supply chains continued to be right-sized, shifting away from “lean” inventory strategies that proved sound in the past. As evidence of the need for warehouse and distribution space, despite the global pandemic slowdown, net occupancy gains for bulk industrial space totaled nearly 79.8 million square feet at mid-year, up 51% over the 52.8 million square feet transacted at mid-year 2019. A total of 96.5 million square feet of new supply was added to the market, and an additional 170.7 million square feet of big-box space remains under construction.
Building Inventory
Historical Data
Northern California
Inland Empire
Toronto
New Jersey
Eastern Pennsylvania
I-4 Corridor
Atlanta
Kansas City
Greater Phoenix
Dallas-Fort Worth
Houston
Columbus
Cincinnati
Chicago
Indianapolis
Memphis
After beginning the year with an off-quarter in the first three months of the year, Atlanta's bulk industrial market roared back during the second quarter, absorbing nearly 4.5 MSF of space, just 8.9% lower than bulk activity one year ago. Development of bulk industrial product remains strong in Atlanta. Developers remain bullish despite the slower than normal permitting process. Nearly 13.4 million square feet of new bulk inventory is under construction in the Atlanta area, with major projects for Amazon, Goodyear, Facebook and Home Depot underway. A total of 7.9 million square feet of new supply was added to the market during the first half of 2020.
E-commerce continues to be a driving force in the Atlanta market, with approximately 6 MSF of e-commerce space being leased since the beginning of the year. With an estimated $4.13 trillion in total e-commerce sales predicted for 2020, we don’t see this trend slowing down anytime soon.”
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Chicago’s big-box market, a subset of the industrial market’s most modern and desirable product, defied the odds between April and June during the height of the pandemic, when it recorded positive net absorption and a vacancy rate decrease in several submarkets, as well as the overall big-box vacancy rate. Eight big box buildings greater than 1 million square feet are under construction, a record for the market. Only one of these projects is purely speculative, while the remaining seven are build-to-suit projects or have been leased by a tenant.
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The COVID-19 pandemic, and an economic recession, didn’t do much to slow the roll of Chicago’s resilient big-box industrial market through the first half of 2020. New leases totaled 14.5 MSF between January and June, a six-month record. Nearly 70% of the square footage leased has been by low-exposure tenants, including e-commerce giant Amazon.com, logistics companies, home improvement retailers and packaging users. The second half of 2020 will likely see more of the same, despite continued uncertainty surrounding the economy and the unfolding pandemic.”
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Although absorption remains positive, overall vacancy for Cincinnati big-box space rose to 12.3%, up from 7.8% one year ago. The rise in vacancy can be attributed to large amounts of spec construction delivered in this market. To date, nearly 3.6 million square feet of bulk space has delivered, while an additional 3.8 million square feet remain in the pipeline. The overwhelming majority of new space added to the market is in the bulk warehouse sector, which, in mid-2018, had reached a historic low vacancy rate of 3.5%. New inventory will continue to keep bulk warehouse vacancy levels elevated, but forecasts for sustained demand should provide a consistent flow of leasing activity. Development projects for Amazon, Kroger and Rhinestahl Corp. remain under construction and should all be delivered early in 2021.
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After posting record low vacancies in mid-2018, the Cincinnati industrial market has been in a state of transition. During this period, development activity accelerated, delivering much needed new inventory, which along with occupiers downsizing or vacating second generation space resulted in increased vacancy. This year started off robust, but was soon slowed by the state-mandated lockdowns. Activity levels have begun to increase with more inquiries, tours and leases executed later in the second quarter. But to our dismay, Cincinnati was not immediately a beneficiary of the e-commerce growth that surged during lockdowns across the country. As we enter the third quarter, industrial occupiers are scrambling to fulfill rapidly growing online sales, redesign supply chains and boost inventory levels to eliminate the risk of future disruptions. These efforts will produce greater net absorption by year’s end than we’ve seen in the past 18 months, providing a very positive finish to an overall COVID-19 ridden 2020.”
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Despite uncertainty regarding the COVID-19 pandemic, the Columbus big-box market experienced a strong start to the year, posting nearly 2.8 million square feet of net absorption year-to-date. Overall net rents for big-box properties saw an uptick to $3.93 per square foot, an 8.9% increase over 2019 due to an influx of new bulk development. The construction pipeline also remains robust with nearly 6.5 million square feet of big-box product currently underway. During the first half of the year, 5.1 million square feet was added to the market, a significant increase over the 1.2 million square feet that was added at this time in 2019.
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Columbus will continue to see high activity in industrial space. The COVID-19 pandemic has created increased demand for e-commerce and distribution space, and Central Ohio is logistically well-positioned to keep up. Located within a 10-hour drive of half of the U.S. population, the Columbus market’s strategic location assists industrial tenants in reaching their customers. The industrial sector is experiencing ongoing demand and record-breaking development, primarily in the Southeast, East and West submarkets. Additionally, Rickenbacker Inland Port is a major point of access via air and rail, making Columbus ideally situated for increased international cargo demand in the future.”
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The Dallas-Fort Worth market has experienced unimaginable success during a time when the COVID-19 pandemic has stricken the country. Companies are continuing to take advantage of Dallas’ central location, inexpensive labor rates for a major metropolitan area and an abundance of newly constructed warehouse product. Record absorption and vacancy levels of 10.2% are keeping demand for new, modern space and construction levels high with 19.3 million square feet of space set to deliver over the next 12 months. There were four new buildings totaling over 2 million square feet that began construction in the second quarter. Much of the product that is currently under construction is being built on a speculative basis, which in turn means that of the 39 buildings under construction, over 25 buildings are without any pre-leasing activity and are being marketed as fully available.
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The Dallas-Fort Worth industrial real estate market continues to remain “white hot” despite the pandemic of the last six months. Industrial development is surging and is expected to continue to expand in 2021 and 2022 in Dallas and across the U.S. North Texas remains a location of choice for companies consolidating, expanding or relocating their operations to our business friendly, relatively low cost, centrally located metropolis. The availability of institutional capital continues to be strong, and Dallas-Fort Worth is a favored location for companies desiring to locate here and also correspondingly for developers and capital wanting to invest in what has become the #1 preferred commercial real estate investment type – industrial real estate. The Dallas team gets one or two calls per week from local and out-of-state developers and institutional capital sources wanting to discuss opportunities to place capital or purchase land on which to build a new warehouse project.”
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The Houston big-box market continues to be active, despite the continued uncertainty surrounding COVID-19. Year-to-date overall absorption outpaced this time in 2019 by more than 31% and totaled nearly 6.2 million square feet. Active on-going construction of 10.1 million square feet of big-box industrial buildings in addition to 9.5 million square feet of delivered buildings have Houston well positioned for post-COVID-19 economic rebound. Three build-to-suit facilities greater than 1.0 million square feet are underway in Houston for Ross Stores, Medline Industries and Dollar Tree. Amazon’s 806,000-square-foot facility is scheduled to deliver early in 2021. Far-West Houston is emerging as a major big-box logistics destination with 5.5 million square feet of construction underway, with 750,000 square feet of speculative development under construction.
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Houston has a number of big-box facilities under construction now, including Ross Stores (2.3 MSF), Medline Industries (1.3 MSF) and Dollar General (1.2 MSF). These buildings, along with accelerated growth in e-commerce tenants like Amazon, show confidence in a continued growth trajectory for regional consumer spending. However, with 9.5 MSF of recently delivered buildings and 14.5 MSF of unleased buildings under construction, Houston will need increased tenant activity and sustained absorption to remain a healthy and balanced industrial market. We expect increasing tenant concessions in the short term as landlords work to lease the new inventory of large buildings. As consumers and companies emerge from the COVID-19 downturn, and as the national economy resumes normality, Houston is well-positioned to capture its fair share of U.S. warehouse absorption with its large inventory of available state-of-the-art big-box buildings.”
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The I-4 Corridor industrial market is one of the fastest growing and most dynamic industrial markets in the country. More than 21 million people live within 250 miles of the market’s core, making it an ideal location for retailers, wholesalers and 3PLs to locate. Nearby Orlando is also home to a burgeoning millennial population, making the market extremely popular for distribution facilities. Nearly 32 million square feet of newly developed bulk industrial space has been added to the market since Q1 2015, with another 7.1 million square feet currently under construction. Build-to-suit activity remains steady in the I-4 Corridor as Ace Hardware recently signed for 710,000 square feet in the market. Brennan Investments broke ground on largest speculative development in the region this cycle.
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The Fortune 500 have dominated the bulk leasing market along the I-4 Corridor, indicating a “first mover” mentality in the continued reconfiguration of the southeastern supply chain. Bulk development continues to push further away from full interstate interchanges due to strong occupier demand but a decreasing supply of developable land sites.”
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With increased demand from e-commerce occupiers, the size of bulk space continues to grow. Another 11.8 million square feet of projects are under construction moving into the back half of 2020, as developers hope to capitalize on the central Indiana industrial market’s momentum. Thirteen of those projects are larger than 500,000 square feet. Despite the completion of 2.8 million square feet of speculative construction projects already this year, big-box vacancy dipped to 6.3% – the lowest vacancy rate since 2012. With inventory surpassing 100 million square feet, developers are expanding the boundaries of the Indianapolis MSA as they seek new greenfield opportunities for big-box development.
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The Indianapolis big-box industrial market remains very strong despite the global pandemic. Tenants continue to absorb space at record-high levels. Mid-year 2020 net absorption is almost double that of mid-year 2019 and new construction projects are also coming out of the ground at record levels. We expect big-box demand to grow due to the desire to increase domestic inventories, as well as to meet the surge in e-commerce demand. Indianapolis is well suited to accommodate this growth given its strong supply of speculative vacancies, central location, strong labor dynamics and favorable business climates.”
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The Inland Empire remains the largest big-box market in North America with more than 359 million square feet of existing big-box space. Net absorption remained positive in the Inland Empire as the largest e-commerce companies have continued to expand despite weakening economic fundamentals. Speculative development, which was initially put on hold by many developers at the start of the pandemic, has largely resumed as the inventory for very large buildings has become non-existent. The Inland Empire added the second most amount of new big-box facilities in the U.S. year-to-date, with 10.3 million square feet of new supply recorded at midyear. An additional 10.6 million square feet remain under construction with projects for Uline and VF Corporation underway.
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2020 has seen significant disruptions in supply chains, underscoring the need for resiliency. Industrial users are putting increased efforts on building safety stock and not having a single source supplier. This means reducing the number of SKU’s to cut costs, complexity and inventory, simplifying products to what is core to the consumer. These changes may last after the pandemic and consumer spending patterns may be forever altered. Larger, well capitalized companies are better able to adjust.”
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With nearly 47 million square feet of big-box real estate, Kansas City is the smallest market showcased in this report. While the region is much smaller than the core markets, its logistics advantages provide a wealth of opportunity for both occupiers and developers. Kansas City’s geography provides a level of access to consumers that is difficult to match in North America. A total of 1.3 million square feet of big-box space was delivered in this market at midyear and an additional 6 million square feet remains under construction. The majority of space currently under construction is scheduled to be delivered by the end of the year. Construction activity is evident across every submarket within the Kansas City metro, with new logistics parks also planned for future development.
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The Kansas City market continues to be a thriving industrial market, as a result of its geographically- centralized location, superior infrastructure and business-friendly foreign trade zone program. Four interstate systems converge upon Kansas City, allowing goods to be delivered to 85% of the nation’s population within two days. As a result, multiple intermodal facilities and infrastructure continue to spur development activity within the market. Logistics parks throughout the Kansas City metro continue to see elevated levels of activity to cater to the growing demand for new distribution and warehouse space within our market.”
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Over 400 acres of industrial developable land were purchased during the first half of 2020, proving that development momentum in the Memphis area remains strong. Construction of Class A inventory is under the leadership of eight developers. A total of 7.8 million square feet of big-box facilities were under construction at midyear, with the majority scheduled for delivery by year-end 2020. Build-to-suit construction leads the pack with 5.7 million square feet under development, including e-commerce giant Amazon occupying 3.1 million square feet by year-end. Proposed speculative development of 14 projects (10.9 million square feet) will produce new product in the Desoto County and Marshall County submarkets, 7.6 million square feet of which is expected to commence during Q3 2020. Associated Wholesale Grocers and Baxter also have future construction planned, totaling 1.9 million square feet that is scheduled to deliver during the second half of 2021.
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The first half of 2020 has seen the Memphis industrial market continue its run of robust speculative big-box growth. With current Class A vacancy at 3.9%, its lowest in decades, coupled with continued cap rate compression, big-box development has catapulted to just over 7.8 MSF under construction. With the continued velocity of users in the market and strong rate growth, the market will continue to drive investment and development activity into 2021.”
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The Northern California market consists of three distinct areas: East Bay —a mature market near the Port of Oakland, the Stockton/San Joaquin County area —an area with fewer land constraints, and Sacramento —an emerging big-box market. Nearly 8.9 million square feet of big-box product is currently under construction throughout the Bay Area and Central Valley with leading developers including Prologis, Overton Moore Properties, Trammel Crow, Blackcreek, American Realty Advisors, Duke Realty, Bridge, Centerpoint and Dermody all have projects that have broken ground in Northern California. Nearly all big-box speculative developments were pre-leased prior to completion over the last four years, including projects for e-commerce furniture retailer, Wayfair, as well as Amazon, Medline, Tesla and UPS.
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During the COVID-19 pandemic, consumers have relied heavily on the e-commerce delivery model to provide their home good needs during the shelter in place mandate. As a result, the greater Bay Area industrial market continues to benefit from strong demand from the e-commerce and food and beverage industries — many of whom are servicing the local economy and strong businesses expanding their e-commerce platforms. Home improvement, food industries and technology are also major drivers for demand of industrial space in the region. The shift to an e-commerce delivery model continues to be the catalyst for the increasing demand of warehouse properties and the current high levels of construction.
With vacancy rates throughout the region in the low single-digit range, new speculative development is underway in virtually every submarket. Many new projects are being pre-leased prior to completion with other active requirements considering these state-of-the-art options. High costs of construction, relatively tight labor markets and rising land prices continue to put pressure on new development yields throughout the industrial market.”
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New Jersey’s industrial market has been the silver lining for the local commercial real estate industry during the pandemic, as healthy demand for large blocks of space helped keep net absorption positive at 7 million square feet. Owners and developers continue to be active in response to strong market improvements, racing to break ground on new construction projects. Currently there are 17 buildings under construction totaling 9.0 million square feet, while 10 buildings completed construction totaling 6.3 million square feet of new product.
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While headwinds were felt in the office and retail spaces, industrial market fundamentals continued to improve. In all probability, New Jersey’s industrial market won’t escape this economic downturn unscathed, but it will fair better than other property types during this period and the long-term outlook remains positive. Supply chain disruptions from the virus are anticipated to spur demand as retailers scramble to find additional space to store excess products. E-Commerce and logistics companies are increasing their space needs as consumers turn to online retailers during the pandemic. Stay at home orders have accelerated the use of online shopping and as such retailers with an online presence and logistics companies drove demand.”
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The logistic advantages of the Southern New Jersey-Eastern Pennsylvania market continue to support demand in the area. Big-box activity accelerated in the area following a brief slowdown during the pandemic shutdown. This momentum will continue in the second half based on the volume of new requirements scheduled to close by year-end and large retailers continuing to expand in the region. New supply totaled nearly 5 million square feet at midyear, much lower than deliveries recorded in previous quarters. Some developments were delayed by the stay in construction of non-essential projects, causing a decline in deliveries. A record-high level of projects remained under construction, totaling 21.7 million square feet signaling that there is no end in sight of the amount of newly constructed product to hit the market in the coming quarters.
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COVID-19’s impact on transaction volume has been relatively small in the Southern New Jersey-Eastern Pennsylvania region. Amazon has been extremely active, and other home improvement and mass merchandiser retailers, such as Target and Home Depot, signed deals for large format buildings.
There is a clear preference for new product, speculative or build-to-suit. Though occupier transactions are up, second or previous generation vacancies have increased. This was a pre-COVID-19 trend resulting from volatility in the retail supply-chain occupiers. Deliveries and construction starts will increase in the second half of the year following a pause in construction during the shutdown of non-essential commercial construction during parts of the first and second quarters. Market-wide, construction activity is most prevalent in the 250,000 to 500,000 SF range.
An uptick in vacancy is expected as this year’s speculative deliveries will be concentrated in the second half of 2020. However, the pipeline of requirements indicates a strong potential for a record-breaking level of transactions.”
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The Phoenix big-box market remains an attractive option for occupiers and investors because of its proximity to a growing population, a strong workforce base, an expanded and modernized highway system and more attractive rental rates compared to markets in Southern California. Although the Phoenix market is the second-smallest big-box market tracked in this report, activity here rivals many of the larger markets, despite the uncertainty surrounding the COVID-19 pandemic. Fueled by high demand for e-commerce fulfillment centers, 2020 has the highest inventory of big-box facilities under construction ever in the Phoenix metro. Along with a handful of speculative development, major projects for Amazon, Lucid Motors, RRB Beverage Operations and Red Bull are underway. Projects under construction are moving along as quickly as supply allows, and a slowdown in construction materials seems to be one of the main factors hindering construction.
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The Phoenix industrial market continued its momentum, despite the COVID-19 pandemic in the big-box sector. We saw many significant regional and national logistics occupiers locating in the metro industrial market with Amazon, once again, leading the way. The opening of the Loop 202 freeway and the Loop 303 corridor became home to large corporate users taking advantage of excellent freeway access and solid market dynamics.
Our supply of labor, availability of big-box product, proximity to Southern California and attractive investor pricing will continue to highlight Phoenix as a Class A location for occupiers, developers and investors.”
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The Phoenix big-box market remains an attractive option for occupiers and investors because of its proximity to a growing population, a strong workforce base, an expanded and modernized highway system and more attractive rental rates compared to markets in Southern California. Although the Phoenix market is the second-smallest big-box market tracked in this report, activity here rivals many of the larger markets, despite the uncertainty surrounding the COVID-19 pandemic. Fueled by high demand for e-commerce fulfillment centers, 2020 has the highest inventory of big-box facilities under construction ever in the Phoenix metro. Along with a handful of speculative development, major projects for Amazon, Lucid Motors, RRB Beverage Operations and Red Bull are underway. Projects under construction are moving along as quickly as supply allows, and a slowdown in construction materials seems to be one of the main factors hindering construction.
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The GTA industrial market continues to post record fundamentals, led by expanding e-commerce footprints and new entrants into the market, retailers reshuffling their supply chains, 3PLs and the growing food and beverage sector. Trends indicate the average square footage of requirements are increasing, as demonstrated by a record number of transactions and requirements in excess of 400,000 SF. The remainder of 2020 will see a return to in-fill redevelopment in core GTA markets as market rents justify purchase prices.”
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Atlanta
Georgia
Cincinnati
Ohio
Columbus
Ohio
Dallas-Fort Worth
Texas
Greater Phoenix
Arizona
Houston
Texas
I-4 Corridor
Florida
Indianapolis
Indiana
Inland Empire
California
Kansas City
Missouri
Memphis
Tennessee
California
Northern
New Jersey
Northern-Central
Eastern Pennsylvania
Southern New Jersey
Toronto
Canada
Chicago
Illinois