North America Overview
Southern New Jersey-Eastern Pennsylvania
Northern-Central New Jersey
I-4 Corridor
Toronto
Atlanta
Columbus
Cincinnati
Indianapolis
Chicago
Memphis
Kansas City
Houston
Dallas-Fort Worth
Greater Phoenix
Inland Empire
Northern California
Click each market for more information
VIEW MARKET
116,984,627 SF $5.05 10.8% 3,804,121 SF
Existing Inventory: Average Rental Rate: Vacancy Rate: Net Absorption:
I-4 CORRIDOR, fl
214,447,503 SF $3.76 13.0% 12,962,885 SF
ATLANTA, GA
102,413,037 SF $7.84 10.4% 3,145,934 SF
NORTHERN CALIFORNIA
339,372,700 SF $5.69 4.0% 23,790,000 SF
INLAND EMPIRE, CA
59,165,659 SF $5.21 16.9% 1,062,466 SF
GREATER PHOENIX, AZ
45,432,955 SF $4.16 9.7% 3,968,271 SF
KANSAS CITY, MO
260,614,335 SF $3.91 10.6% 19,016,417 SF
DALLAS-FORT WORTH, TX
93,785,131 SF $5.09 10.6% 5,174,062 SF
HOUSTON, TX
104,849,592 SF $3.60 4.6% 3,609,784 SF
MEMPHIS, TN
272,439,780 SF $4.67 8.5% 17,426,927 SF
CHICAGO, IL
102,264,797 SF $3.93 6.9% 8,382,389 SF
INDIANAPOLIS, IN
72,320,061 SF $4.14 9.4% 2,076,433 SF
CINCINNATI, OH
90,083,127 SF $3.61 8.1% 2,479,249 SF
COLUMBUS, OH
234,907,327 SF $8.81 1.6% 4,107,142 SF
TORONTO, CANADA
114,858,025 SF $8.58 2.5% 6,380,435 SF
NORTHERN-CENTRAL, NJ
282,891,062 SF $5.42 8.5% 13,922,623 SF
SOUTHERN NJ-EASTERN PA
Ceiling heights of 28' clear or greater
Primarily used for distribution
200,000 SF or larger industrial building
Pre-cast or tilt-up concrete construction
What constitutes a big-box building?
In this unique interactive report, we examine the North American big-box industrial market in 2019, which includes the seven core North American big-box markets, as well as nine emerging secondary markets. We will highlight the fundamentals, take a look at demand factors including demographics and logistics capabilities and will assess what lies ahead for 2020 and beyond.
Unless otherwise specified, all report data is for year-end 2019.
Jack Rosenberg, SIOR National Director, Logistics and Transportation jack.rosenberg@colliers.com
Pete Quinn, SIOR National Director, Industrial Services | USA pete.quinn@colliers.com
Contact
A variety of factors across North America have impacted demand for big-box industrial facilities through the end of 2019. Core markets including the Inland Empire, Dallas-Fort Worth, Atlanta, Chicago, Northern-Central New Jersey, Southern New Jersey-Eastern Pennsylvania and Toronto continue to be the destination of choice for many occupiers, while emerging secondary markets that are near the fastest-growing population centers and in close proximity to the most utilized logistics hubs in the region continue to grow.
Big-Box Market Report
2019 Year-End Review and Outlook
North America
SCROLL TO MAP
Building Inventory
222
Fully Vacant
Big-Box Buildings
200,000 - 499,999 SF
3,821
Amanda Ortiz National Director, Industrial Research | USA amanda.ortiz@colliers.com
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500,000 - 749,999 SF
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Overview
The accelerated growth of industrial industries in the United States — including third-party logistics (3PLs) and e-commerce companies — maintained market fundamentals in 2019. Vacancy, transaction volume and net occupancy all remained healthy in the last year, albeit at slightly lower levels than 2018. In the fourth quarter of 2019, the share of e-commerce in total U.S. retail sales was 11.4%, up from 10.1% over the same time in the previous year. As of that quarter, retail e-commerce sales in the United States amounted to more than $158 billion U.S. dollars. In terms of industrial transaction volume, e-commerce accounted for 9.2% of activity in 2019, down slightly from 11.4% in the previous year. Amazon — by far the largest e-commerce occupier — transacted 17.7 million square feet in 2019, down from 19.5 million square feet in 2018. Amazon, while taking less square footage, continued to expand their footprint by taking more facilities in more locations. The emergence of COVID-19 early in 2020 should initiate a shift in consumer preferences, with a greater focus on online purchasing. General retail and wholesale firms encompassed a greater percentage of occupier activity in 2019, accounting for 23.7% of bulk occupier activity, up from 17.5% in 2018. 3PLs and packaging companies tallied the largest share of bulk transactions at 25.1%, totaling nearly 105.4 million square feet. The 3PL industry is expanding its distribution capabilities and will be a major demand driver going forward. In terms of occupancy gains and leasing activity, the Inland Empire remains the best performing big-box market in North America because of its excellent location, available land for development and strong labor force. The Inland Empire led North America in 2019, with more than 36 million square feet of new leasing activity and produced nearly 24 million square feet of net absorption. Occupiers are expanding warehouse locations to service online consumers and cut transportation costs. While there are some major factors affecting the broader U.S. economy, the need for stronger omnichannel strategies should keep industrial real estate demand active in the coming year. Overall, 239.8 million square feet of occupancy gains was recorded in 2019, with 131.3 million square feet in the big-box market, just 2.3% below 2018 levels.
Key Statistics
The Inland Empire, Atlanta, Dallas-Fort Worth and Chicago markets all posted occupancy gains greater than 20 million square feet, and all big-box markets posted positive net absorption over the last year. Although demand was strong, the lack of large big-box space in nearly all of the markets tracked in this report (750,000 square feet and larger) kept fundamentals from surpassing this time last year. At year-end, there were 751 existing distribution buildings larger than 750,000 square feet in the U.S. and just 56 of these were fully vacant. On the investment side, capitalization rates (cap rates) held steady at 5.6% at year-end, with nearly half of the core markets in this report posting cap rates at or near 5%. While demand for big-box product was solid in core markets, the decreased amount of product to purchase in these markets has pushed investors into secondary markets, where fundamentals are improving and there are more opportunities for higher yields. Although we predict big-box fundamentals to remain stable going into 2020, there are significant changes to monitor. Gauging the impact of COVID-19 on U.S.-China trade and, by extension, U.S. industrial demand, is difficult due to the fluidity of the situation. To put things in perspective, in 2003, China accounted for 4.3% of global GDP, but now accounts for 16.5%. China is much more intertwined and central to global supply chains in 2020 than in 2003. Expect the largest hit to China’s GDP in Q1 2020, and the largest hit to U.S. GDP in Q2 2020. While U.S. imports will likely weaken further across the board in the first part of 2020, expect East and Gulf Coast ports to take a lesser hit relative to their West Coast port counterparts. Economists have updated their initial v-shaped recovery outlook to a more conservative u-shaped recovery where a prolonged period of restoration is predicted. Despite the challenges facing the industrial sector, the big-box market is poised for continued activity. A number of big-box facilities are scheduled to deliver in 2020, with 172 million square feet under construction at the end of 2019. This will ensure availability to meet the demand of occupiers looking to optimize their supply chains.
Vacancy Rate
Taking NNN Rate
Overall Net Absorption
Under Construction
Historical Data
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One of Atlanta’s many logistics advantages is its close proximity to the Port of Savannah, the fourth-largest seaport in North America and the second-largest on the East Coast. The Port of Savannah is home to the Garden City Terminal — the largest single terminal in the U.S. — which operates two Class I rail yards. Some of the largest industrial markets in the U.S. — including Atlanta — are within a four-hour drive from the Port of Savannah. In 2018, the region became home to the Appalachian Regional Port. The new inland port located in nearby Chatsworth, GA offers direct rail service from the Port of Savannah’s Garden City Terminal, significantly lowering truck traffic through the Atlanta area.
Major Logistics Driver: Port of Savannah
Senior Vice President | Atlanta
Ben Logue, SIOR
Atlanta is the economic driver and transportation hub of the fastest growing geographic region in the United States. The Atlanta metro population and its GDP contribution are both ranked in the top 10 nationally. Atlanta ranks third with the largest concentration of Fortune 500 companies. Atlanta’s Hartsfield-Jackson is the world’s busiest passenger airport — moving more than 101 million passengers annually. The Georgia Ports Authority moved a record 5.5 million twenty-foot equivalent units (TEU) and more than 650,000 auto and machinery units in 2019. The Atlanta industrial market added more than 114 million square feet of net absorption since 2014, averaging more than 19 million square feet per year. Atlanta absorbed 16 million square feet of industrial space in 2019. The Atlanta big-box market experienced its largest single year absorption in history at just under 13 million square feet, comprising 80% of 2019’s total absorption. Q4 2019 marked the 34th consecutive quarter of positive net absorption in Atlanta. By year’s end, only six vacancies with 500,000-750,000 square feet were available in Atlanta’s 740 million square foot industrial market. Economic diversity, abundant employment opportunities, and unsurpassed transportation, technology and financial infrastructure will continue to fuel Atlanta’s Tier 1 industrial market growth in 2020 and beyond.”
Georgia
Overall fundamentals were solid in Atlanta and its big-box market experienced a banner year for net absorption, totaling nearly 13 million square feet in 2019. This marks an 11.4% increase over the record set in the previous year. Despite the record year of occupancy gains, overall bulk vacancy increased to its highest level in six years. This is a direct result of construction completions topping 13.4 million square feet in 2019. The South Atlanta submarket dominated the market, accounting for almost half of the total absorption and leasing activity this year. Three of 2019’s top five largest industrial leases in the Atlanta market took place in South Atlanta including transactions by Goodyear and XPO Logistics, both signing leases in excess of one million square feet.
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Atlanta’s bulk market sees record year of absorption
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With only six fully-vacant buildings between 500,000-750,000 square feet available, this big-box sector would appear to be in short supply. This, however, is not the case as tenant demand for properties of this size has been tepid. Overall asking rental rates continue to show upward movement, increasing 3.6% year over year. There are, however, some submarkets where rental increases have stagnated for big-box facilities, including Northeast Atlanta and I-20 West/Fulton Industrial. Atlanta’s central location in the Southeast provides access to 28 million people within 250 miles. Along with growing inland logistics capabilities, these factors will be a boon for the market. The outlook for its big-box market remains solid, though new supply is expected to outpace demand, leading to an overall vacancy increase for the coming year.
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Notable Transactions
Big-Box Leases | Year-End 2019
Big-Box Sales | Year-End 2019
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NEXT: CHICAGO
PREVIOUS: TORONTO
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Chicago is the major rail center of the United States, claiming 70% of the nation’s rail and intermodal activity. Six of the seven major rail lines have hubs in the greater Chicago area, a major reason the region is one of the largest big-box industrial markets in the country. Two of these rail lines — the BNSF Railway and Union Pacific Railroad — operate large intermodal centers in Chicago’s I-80 Joliet Corridor submarket. Combined, these facilities are considered the largest inland port in North America. Rail is not the only logistics advantage that the region provides. Three of the nation’s busiest transcontinental expressways cross through the region. The Chicago Air Gateway comprises O’Hare International Airport and the Midway International Airport. Consistently recognized as one of the busiest airports in the world, Chicago O’Hare International Airport is not only a national aviation hub, it is also a global air cargo gateway, providing billions of dollars in trade to Chicago’s economy.
Major Logistics Driver: Rail, Inland Port, Central Location
Chicago’s big-box industrial market finished the year on a strong note, with the five largest big-box leases of 2019, all signed during the second half of the year. Following two years with few leases signed greater than 500,000 square feet, mega-sized leases returned in 2019, with nine new leases greater than 500,000 square feet signed during the year in modern big-box buildings. This demand will continue throughout 2020 as several large requirements remain active.”
National Director, Logistics & Transportation Group, Principal | Chicago
Jack Rosenberg, SIOR
The record absorption and new leasing volume recorded would have pushed the vacancy rate down even further, but developers delivered 40 new big-box buildings totaling 17.5 million square feet during 2019, the most since 2017 when 20 million square feet of big-box product was delivered. 27 of the 40 buildings delivered over the course of the year were built on a speculative basis, totaling 11.5 million square feet. At the end of the year, this new speculative product was 33.5% leased, meaning 7.6 million square feet of new big-box vacancy was introduced to the market in 2019. Extensive big-box development continued, even through the winter months, as 30 new buildings greater than 200,000 square feet were under construction at year-end, totaling 12.4 million square feet.
Demand for industrial space in Chicago’s big-box market — as measured by net absorption (or the net change in occupancy) — set a new record for the current cycle in 2019, totaling 17.4 million square feet. This figure eclipsed the previous record of 16.1 million square feet recorded in 2016 and was bolstered by 20.7 million square feet of new leases and lease expansions signed during the year in the market’s biggest, most modern industrial product — also a record for the cycle. The big-box vacancy rate correspondingly fell by 54 basis points over the year to 8.5%, the lowest it has been since the second quarter of 2017.
Demand for big-box industrial in Chicago reaches new high
Illinois
NEXT: CINCINNATI
PREVIOUS: ATLANTA
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In 2017, Amazon announced plans to build a $1.5 billion, centralized Prime Air Hub at the Greater Cincinnati/Northern Kentucky International Airport (CVG). Upon full completion in 2026, the facility will encompass 3.3 million square feet and employ more than 2,000. The first phase — now under construction — totals 819,000 square feet and is scheduled for completion in early 2021. Amazon has been operational at CVG for over a year, sharing an air cargo facility with DHL, who operates its North American superhub at the airport. Cargo-related operations have increased significantly and CVG now ranks as the seventh-largest cargo airport by volume in the United States. In response to this rapid growth, development has increased in Cincinnati’s airport submarket anticipating demand from e-commerce and 3PL operators, while Atlas Air, an air cargo solutions provider, commenced construction on a new headquarters building near CVG.
Major Logistics Driver: Amazon Prime Air Hub
While demand for industrial product has gained momentum since 2018’s slowdown, that doesn’t mean there aren’t challenges. The “bread and butter” of the Cincinnati industrial market are occupiers needing about 150,000 square feet. Developers were building — and some still are constructing — distribution facilities of 500,000 square feet and greater. These owners are still searching for tenants for many of those larger spaces, accounting for the increase in vacancy recently. Many developers, though, have pivoted to constructing product in the 150,000 to 300,000 square foot range and have seen success in their leasing efforts.”
Senior Vice President & Principal | Cincinnati
John b. gartner III, SIOR
Construction activity remains elevated, totaling 6.1 million square feet under development at year-end, of which 67% is speculative. Big-box facilities account for 5.2 million square feet of projects under development. Speculative projects totaling an additional 1.4 million square feet are scheduled to break ground during the first quarter of 2020. If the trend during the final two quarters of 2019 is any indicator, demand levels should roughly keep pace as new supply is delivered, and vacancy will remain steady in the quarters to come.
During the current 10-year expansion period, net absorption totaling 40 million square feet outpaced new supply of 31 million square feet in the Cincinnati industrial market. Vacancy in the big-box logistics sector plummeted to 3.5% at midyear 2018, and has steadily increased since to 9.4% at the end of 2019, due to record amounts of new supply. With limited space options, demand — measured as total square footage of tenants in the market — dropped steeply but has recently begun to accelerate as availability has increased.
New supply driving demand in Cincinnati market
Ohio
NEXT: COLUMBUS
PREVIOUS: CHICAGO
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Throughout the new year, the Columbus market will continue to see growth and high demand in industrial space. Central Ohio has a strategic location, being within a 10-hour drive of half of the U.S. population, which assists industrial tenants reach their customers. The city is seeing ongoing demand from 3PL providers and e-commerce companies — primarily in the Southeast, East and West submarkets — allowing quick access to Interstate 70 and Interstate 71. Additionally, Rickenbacker Inland Port is a point of access for cargo via air and rail, making Columbus ideally positioned for increased international cargo demand in the future.”
Senior Executive Vice President | Columbus
Michael linder, SIOR
Construction also experienced a record-breaking year, as nearly 8.7 million square feet of big-box development was underway at the close of 2019. The largest leases in 2019 were signed by prominent e-commerce and logistics companies, which continue to drive activity throughout the market. Columbus saw another strong year in investment sales, posting 14 big-box sales totaling 8.3 million square feet and $455 million in total sales volume. Cap rates dipped to 7.0%, down from the 7.1% at the end of 2018.
Despite a slow start, the Columbus big-box market saw another strong year in 2019, posting nearly 2.5 million square feet of positive net absorption. More than 5.3 million square feet of industrial facilities were delivered in 2019, including 3.0 million square feet of big-box space. Due to the uptick in new supply, overall vacancy for bulk space increased slightly to 8.1%, but is expected to contract in 2020 as occupiers take advantage of the new product offerings. Overall rents for big-box properties saw an uptick to $3.61 per square foot — the highest on record — up from the $3.57 per square foot recorded this time last year.
Record-breaking construction in Columbus forecasts a strong 2020
Tremendous access and a prime location set the Columbus industrial market apart from similar metros, making it a global logistics leader. The Rickenbacker Inland Port — located just southeast of the city center — is the area’s major logistics driver. One of the world’s only cargo-specific airports, Rickenbacker has 500,000 square feet of air cargo facility space, 130 acres of cargo ramp and handles more than 255 million pounds of cargo every year. The Port is also home to a Global Logistics Park, which currently offers more than 70 million square feet of distribution space, with room for expansion. Rickenbacker Inland Port directly connects Central Ohio with the rest of the world, enabling industrial occupiers in Columbus to reach millions of global customers.
Major Logistics Driver: Rickenbacker Inland Port
NEXT: DALLAS-FORT WORTH
PREVIOUS: CINCINNATI
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Dallas-Fort Worth’s central U.S. location enables the market to act as an advantageous distribution hub, with quick access to rail, air and over-the-ground truck transportation. The region is a global inland port with two locations capable of large-scale cargo operations: Alliance Global Logistics Hub and the International Inland Port of Dallas. Home to major rail logistics operations for the two primary western U.S. railroads — BNSF Railway Company and Union Pacific Corp. — Dallas-Fort Worth is able to tap into major east-west arteries and provide important links to Mexican markets. By truck, distributors can efficiently move products throughout the central United States, reaching 93% of the population within 48 hours.
Major Logistics Driver: Alliance Global Logistics Hub and International Inland Port of Dallas
The Dallas-Fort Worth industrial market continues to lead the nation in absorption (19 million square feet) and new construction (19.9 million square feet). The key to new construction is that our market is absorbing the equivalent square footage of what is being built. So, what is causing the growing demand for industrial space in Dallas-Fort Worth? Dallas-Fort Worth is the central point in the U.S. for distribution and is considered by foreign and institutional capital to be a safe-haven for investment. Add to that our excellent climate and resulting minimum disruptions to supply chains and you have a “perfect storm” for positive continued growth. All in all, as the economy continues to grow, Dallas-Fort Worth remains well positioned to accommodate occupiers, developers and investors with excellent options.”
Executive Vice President | Dallas
Chris Teesdale, SIOR
New supply of bulk industrial space totaled 19.9 million square feet of completed construction during 2019, marking the third consecutive year of deliveries totaling more than 19 million square feet. A total of 21.7 million square feet remained under construction at the end of 2019, with the majority of that space being built on a speculative basis. Market fundamentals in the metroplex continue to outpace the country. Over the past several years, Dallas-Fort Worth has consistently ranked in the top five metros for job creation in the country. Labor is in abundance and wages are relatively reasonable for a market this size. Despite the uptick in rental rates over the last decade, logistics companies deem it necessary to be centrally located with access to more than 26 million people within 250 miles.
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Dallas-Fort Worth’s location, abundance of land and strong labor force continue to make it one of the best big-box markets in the country. This was evident in 2019 as the market set a record for absorption, posting more than 19 million square feet at year-end. Taking rental rates continue an upward trend. Landlords have pushed rates into record territory at $3.91 NNN at the end of 2019. While this is a modest 2.3% increase year over year, in the past five years, rates have increased more than 13%. Investors have taken notice of this trend and — coupled with cap rates of 6.7% — it’s evident that Dallas-Fort Worth is a viable option to place capital.
Record absorption for Dallas-Fort Worth in 2019
Texas
NEXT: GREATER PHOENIX
PREVIOUS: COLUMBUS
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Phoenix expanded its local interstate system, including improvements and expansions, to Loop 202 and 303. This, along with its location along I-10, gives the market a significant logistical advantage in reaching the Southwest populace. Rail access is also robust with two transcontinental railroads servicing the area. The Phoenix Sky Harbor Airport is a burgeoning air cargo hub utilized by both FedEx and UPS, that recently ranked 18th in the country in total cargo. The Greater Phoenix region’s biggest logistics driver is its populace. The region boasts a growing population and the third-largest labor pool for distribution occupations in the Western U.S. Distribution wages are lower than California and the state is a right to work state. With the increased need for labor because of e-commerce, the region will continue to prosper for the foreseeable future.
Major Logistics Driver: Phoenix Sky Harbor Airport
The Phoenix industrial market experienced another banner year in 2019, especially in the big-box sector. We saw many significant regional and national logistics occupiers locating in the metro industrial market, with Amazon leading the way taking more than 3,000,000 square feet in the last six months of 2019 alone. The opening of the Loop 202 freeway at the end of 2019 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 and investment dollars as we move into the next decade.”
Executive Vice President | Phoenix
Don macwilliam
In 2019, the big-box market delivered nearly 2.4 million square feet, including two facilities for e-commerce giant, Amazon. The Phoenix big-box market has not delivered a facility greater than 750,000 square feet since Q1 2013, however The HUB at Goodyear — a 790,980-square-foot project — is set to deliver early in 2020. Big-box development has been especially active in the West Valley, but 2019 had the first East Valley project break ground. The Landing 202 — two distribution facilities totaling 604,000 square feet in Mesa, AZ — is projected to deliver during the third quarter of 2020. With the introduction of the West Loop 202 extension in 2019, the East Valley market will soon see additional growth.
Population growth in the greater Phoenix area helped push big-box inventory to grow 5.8% year over year. New construction is putting upward pressure on vacancy as the overall vacancy rate in these properties reached 16.1% at the end of the year. Vacancy has not risen higher than 20%, however, since Q3 2016. The greater Phoenix area continues to attract industrial occupiers. Tenant demand continues to remain steady and indicates continued healthy absorption rates and rent growth. Net occupancy gains for bulk space totaled 121,669 square feet. The infrastructure investment of the Loop 202 extension that connects the Southeast Valley to the West Valley will make the transportation of goods into and throughout the greater Phoenix area more efficient.
Tenant demand remains steady in Phoenix
Arizona
NEXT: HOUSTON
PREVIOUS: DALLAS-FORT WORTH
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Port Houston’s market strength and strategic location along the 52-mile-long Houston Ship Channel produces a winning combination for business growth and increased industrial development. The economic impact of Port Houston is significant, producing more than 1.35 million jobs and an economic value of $339 billion for Texas. Port Houston generates $5.7 billion in state and local tax revenue annually. Port Houston is recognized as the number one U.S. port in foreign waterborne tonnage and is the number three ranked U.S. port in terms of total foreign cargo value. Having 45% of the Texas market share by tonnage and 96% market share in containers by total TEUs in 2018, it is clear that Port Houston is a key player in this significant statewide recognition. The Port is the largest Gulf Coast container port, handling 52% of U.S. Gulf Coast container traffic in 2019.
Major Logistics Driver: Port Houston
The Houston industrial market has not traditionally been classified as a big-box market in the past, and that hasn’t completely changed. However, the last few years have seen more and more speculative development and build-to-suits of these larger, bulk buildings. Nowhere is this clearer than the West and Far West submarkets, evidenced by occupiers including Igloo, Rooms To Go, Amazon and Academy — all of whom occupy what are termed “mega-distribution centers” (greater than one million square feet). Costco also broke ground in January of 2019 on 150 acres to build what is expected to be a one-million-square-foot facility. This is a new trend in Houston that is likely to continue, albeit at a slower pace as the demand for developable land slowed somewhat in 2019. The market also told us that demand for occupiers to purchase their buildings — as opposed to leasing — increased, driven by lower interest rates and the desire to be located closer in to town. As a result, sellers are getting reasonable prices and that segment remains strong. Cap rates are also extremely low, resulting in an extremely high price per square foot trades on investment sales.”
Vice President | Houston
Kent Willis
Continued positive absorption prompted average rents for bulk industrial space to increase 6.5% year over year to reach $5.09 at year-end. Houston’s bulk industrial leasing activity totaled more than 5.6 million square feet — a good indication that demand for big-box product in Houston will likely continue for the foreseeable future. Houston’s industrial sector is the benefactor of rapid growth in e-commerce and strong port activity, driving the demand for modern bulk space. At the close of the year, more than 12.8 million square feet of bulk development was underway — almost double the construction figures over the prior year. The largest project under construction — a 1.3-million-square-foot build-to-suit distribution warehouse for Medline Industries — is being developed by Clay Development & Construction.
Houston’s overall industrial vacancy rate for big-box facilities increased significantly to 10.6% at the end of 2019 due to a number of bulk facilities that were delivered vacant during the year. A total of nearly 9.6 million square feet was added to the market, of which more than half remained vacant at year-end. As population growth continued in the region, occupier appetite to be located in the energy capital of the world was apparent. Houston’s industrial market posted 2.4 million square feet of occupancy gains in the fourth quarter of 2019, pushing the year-end total to 8.7 million square feet — solidifying its place as one of the top 10 industrial markets in the country. Bulk space absorbed 5.2 million square feet in 2019.
Houston’s bulk industrial market added 9.6 million square feet of new inventory
NEXT: I-4 CORRIDOR
PREVIOUS: GREATER PHOENIX
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While many parts of the country struggle with labor shortages, the entire Central Florida region has an employment concentration that exceeds the national average. Both foreign and domestic logistics companies benefit from a large available workforce and industry-focused educational programs, including Polk State Corporate College Supply Chain and Logistics Institute and Florida Polytechnic’s concentration in Material and Supply Chain. Not only is labor readily available in the I-4 Corridor, it is also affordable, with average warehouse worker wages finishing 2019 at $12.96 per hour, $1.00 an hour lower than the national average. The region is home to strong ground and rail freight capabilities, including the CSX Integrated Logistics Center (ILC) in Winter Haven. The ILC has also been a major boon to Central Florida’s logistics and distribution industry. This centralized transportation hub features a 318-acre terminal adjacent to 930 acres of industrial and business park space slated for use by light industrial facilities and warehouse distribution centers. The region is home to two international airports (Orlando and Tampa) — both with growing cargo handling capabilities. The I-4 Ultimate Project is a 21-mile makeover — from west of Kirkman Road in Orange County to east of State Road 434 in Seminole County that will improve truck flow throughout the area.
Major Logistics Driver: Ample Supply of Available Labor
Central Florida and the I-4 Corridor continue to blossom as a bulk market due to the shift in the Southeastern supply chain, major cities with rapid population growth (Tampa/Orlando), and a favorable business climate that starts in Tallahassee. As a result, new capital sources are flooding to the market and occupiers are making 10-to-20-year decisions to execute upon long- term leases to establish a foothold on the best sites within the region.”
Executive Managing Director | Tampa
Ryan a. vaught
Bulk building design continued to change over the last five years, seeing buildings designed to 36’ clear with two projects planned now being designed to be 40’ clear. Build-to-suit activity has increased with the result of Amazon and Home Depot executing leases for larger than 750,000 square feet while there are RFPs on the street for additional build-to-suits. Vacancy finished the year at 10.1%, relatively unchanged from the end of 2018 when the average was 10.6%. Tenant demand continues to foster enough activity to absorb most of the space being delivered. Absorption in the I-4 Corridor is largely a result of the continued growth of e-commerce, in addition to a reconfiguration of the supply chain, with more occupiers treating Florida as an independent region instead of a subcomponent of the Southeast.
The I-4 Corridor big-box industrial market in Florida, spanning approximately 133 miles from Tampa, through Orlando to Daytona Beach, has experienced a decisive transition of product over the past few years. Nearly 27 million square feet of newly developed bulk industrial space has been added to the market since Q1 2015, with another 2.6 million square feet currently under construction. 2019 was a record year for bulk construction deliveries, with 8.9 million square feet built during the year and more than 10% of the bulk inventory absorbed in 2019. Lakeland, FL in Polk County was the benefactor of the newest product in the I-4 Corridor, with 1.8 million square feet of bulk space delivered.
Record construction and strong absorption figures prevail
Florida
NEXT: INDIANAPOLIS
PREVIOUS: HOUSTON
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Indiana’s reputation as the “Crossroads of America” is a moniker highlighted by the strength of the logistics and transit business through its roads and highways. The state is the national leader in pass-through highways, has the shortest distance in the nation to the median center of U.S. population, and is home to the second-largest FedEx air hub in the world. The state government has allocated more than $12 billion and continues to invest in construction and preservation of this key infrastructure. Logistics operations and developers look to Indiana’s centrality, highway infrastructure, greenfield development opportunities and business-friendly environment as reasons to locate operations in the area.
Major Logistics Driver: Interstate System/Centrality
Indianapolis continues to be a dominant player in industrial real estate. We are accustomed to steady growth, but 2019 surpassed previous records when more than 8.2 million square feet of big-box space was constructed. As absorption hit historic levels, developers took down land positions and kicked off another 30 projects in the greater Indianapolis MSA. Many of our 3PL and e-commerce clients are increasing their local presence, with Indianapolis generally making the short list for multi-market searches for new operations. Our overall fundamentals remain stronger than ever, setting up the Indianapolis market for another strong year ahead.”
Senior Vice President | Indianapolis
Andrea Hopper
Rental rates are ticking up steadily across all size tranches — up 18.7% overall in the last two years. Overall rental rates closed the year at $3.93 per square foot. Investors are seizing on this strong and active sector of the real estate market as cap rates are being compressed to record lows. At the end of 2019, cap rates for the Indianapolis market stood at 5.6%. 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. At year-end, two speculative facilities greater than 750,000 square feet were under construction, to add to the limited space available in this size range.
The Indianapolis big-box market absorbed a record-high 8.4 million square feet of net absorption in 2019 (a 58% increase over 2018), surpassing expectations after averaging 6.1 million square feet in the previous three years. The state’s pro-business environment lends itself to increased interest from bulk occupiers. Despite the completion of 5.5 million square feet of speculative construction projects during the fourth quarter, big-box vacancy dipped to 6.9% by the end of the year — the lowest vacancy rate since year-end 2013. A total of 8.2 million square feet of bulk development was completed during the year. An additional 10.9 million square feet of projects remained under construction moving into 2020, as developers hope to capitalize on the central Indiana industrial market’s momentum.
Indianapolis industrial market boasts record year
Indiana
NEXT: INLAND EMPIRE
PREVIOUS: I-4 CORRIDOR
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The Inland Empire is a vital link on the global supply chain, connecting the United States with the rest of the world via the twin ports of Los Angeles and Long Beach. These ports handle approximately 40% of all inbound cargo into the United States. In addition, the Inland Empire is located within one of the most heavily populated regions of the United States, serving as a vital distribution hub for growing e-commerce sales.
Major Logistics Driver: Twin Ports, Population, Trade
The Inland Empire remains the most desirable industrial market in North America for both tenants and investors. For industrial users, the Inland Empire is a slam dunk, located at the nexus of the largest and second largest industrial port complex in North America, and is also strategically located within the second most populous metropolitan area in the United States. For investors, there is a serious lack of developable land in this region and very strong tenant demand from major industrial users who are among the best capitalized companies in the world.”
Executive Vice President | Inland Empire
Mark Zorn, SIOR
Cap rates continued to compress and dropped to 4.3%, as investor appetite for fully-leased assets remained high. Due to the present climate, risk will be repriced, but demand will remain strong for Class A assets in irreplaceable prime markets. Economic uncertainty will continue to lead to a strengthening of the dollar relative to foreign currencies. This makes imports relatively cheaper and bodes well for import dependent regions such as the Inland Empire once international trade strengthens. The Inland Empire retains its competitive advantage as industrial users continue to upgrade their supply chain. This is especially true for e-commerce companies where turnaround time is of the utmost importance.
The Inland Empire industrial market remains one of the most dynamic markets in North America. Bulk occupiers continue to flock to the region, as evidenced by the record-low vacancy rate of 4% at the end of 2019. Demand for bulk space exceeds existing supply, with a larger share of net absorption taking place in newly constructed projects. In bulk industrial space alone, a total of 23.8 million square feet of occupancy gains was recorded — another record for the Inland Empire. Construction activity has tapered off the last few quarters as land assemblages have become harder to obtain due to skyrocketing land prices. At year-end, just 14 million square feet of big-box space was under development, the lowest amount recorded since 2012.
Record low vacancies at decade’s end
California
NEXT: KANSAS CITY
PREVIOUS: INDIANAPOLIS
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Logistics Park Kansas City (LPKC) — the new BNSF facility located in Edgerton — encompasses 433 acres and has been designed to accommodate the growing demands of freight rail transportation in the Kansas City region. Approximately 1,300 acres of land is being currently being developed by NorthPoint, adjacent to the BNSF facility. Since 2013, LPKC delivered more than 11 million square feet of industrial product since 2013, with additional projects currently under construction. In total, the Kansas City metro area has delivered more than 40 million square feet of industrial space since 2012.
Major Logistics Driver: Logistics Park Kansas City
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. Kansas City is home to the largest rail center in the United States by tonnage and is ideally located at the crossroads of the East-to-West corridor and the route from Mexico to Canada. Multiple intermodal facilities and infrastructure continue to spur development activity within the market. Four interstate systems converge upon Kansas City, resulting in more freeway-lane miles per capita than any other U.S. city, while allowing goods to be delivered to 85% of the nation’s population within two days.”
President | Kansas City
Ed elder
A total of nearly 5.8 million square feet of big-box space remained under construction at year-end, surpassing the prior year’s total of 2.2 million square feet. Big-box facilities under construction included 3.3 million square feet of speculative development that was not pre-leased at year-end. Rental rates of bulk facilities remained relatively flat compared to the prior year. Expect rates on bulk spaces to remain relatively stagnant — if not slightly decline — while smaller industrial buildings will continue to raise rates successfully. The upcoming years are expected to experience additional demand and positive net absorption as the Kansas City market remains a benefactor due to its ideal geography, infrastructure and steady supply of speculative product, which caters to the needs and timing requirements of 3PL and e-commerce growth.
While the Kansas City region is much smaller than the core markets mentioned in this report, its logistics advantages provide a wealth of opportunity for both occupiers and developers. The Kansas City industrial market continued to exhibit robust activity throughout 2019 and vacancy declined to 6.1% at year-end, down 30 basis points from one year ago. Big-box vacancy, however, did not fare as well and posted a 90-basis-point increase over the prior year, due to a number of speculative projects that delivered during the year. In 2019, bulk facilities in the Kansas City metro recorded nearly four million square feet of positive net absorption, nearly double the amount recorded one year ago. This is in contrast to the overall market which saw year-over-year absorption levels fall slightly below the previous year’s total. The Kansas City industrial market ended 2019 with the delivery of more than five million square feet of total industrial product, just shy of last year’s total of 5.1 million square feet. Similar to previous years, Johnson County delivered the bulk of the new product throughout 2019, however construction activity can be seen across every submarket within the Kansas City metro.
Robust activity continued for Kansas City industrial space
Missouri
NEXT: MEMPHIS
PREVIOUS: INLAND EMPIRE
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Memphis International Airport is recognized as one of the world’s busiest air cargo airports. Due to its popularity among passengers (140,000 each month on average) and logistics professionals alike, the airport has an estimated annual economic impact of $23.3 billion and affects 25% of the city’s jobs, according to the University of Memphis. With its headquarters in Memphis, FedEx represents roughly 98% of the airport’s total cargo and handles more than 180,000 packages every hour at its World Hub, which is located at the airport. Being near this hub is key for e-commerce distribution and will continue to draw occupiers to the region for the foreseeable future. The International Port of Memphis is the second-largest inland port on the shallow draft portion of the Mississippi River and the fifth-largest inland port in the United States. The Port is key to feeding product to Memphis’ large rail network. In fact, Memphis is the third-largest rail center in the U.S. behind Chicago and St. Louis and home to nine fully operational rail yards, with a total current container capacity of more than two million annual lifts.
Major Logistics Driver: Memphis International Airport
The Memphis market continued its strong leasing activity in 2019 with nearly nine million square feet of Class A deals executed for the year, drastically reducing the number of large box availabilities. Although size ranges varied, there were six transactions ranging from 650,000 to 1,000,000 square feet, continuing the trend from 2008 that ‘bigger is better.’ This activity has pushed vacancy rates to historically low levels and continued to drive rent growth. With limited Class A big-box options available, developers are rushing to put new Class A speculative product on the ground with nearly eight million square feet planned or under construction for 2020.”
CEO, President & Principal, Asset Services | Memphis
Brad Kornegay
The Memphis industrial market signed 20 new Class A industrial leases greater than 200,000 square feet in 2019, totaling 8.9 million square feet. Manufacturing companies took a bulk of the space (37.5%) followed by 3PLs taking 26.6% of the bulk space. Build-to-suit activity hit an all-time record with seven projects underway at year-end, totaling 3.9 million square feet. This includes large occupiers like Amazon, who recently executed a 1.1 million square foot lease, with another 2.1-million-square-foot multi-story fulfillment center scheduled to break ground during the first part of 2020. The DeSoto and Marshall County submarkets remain the choice areas for bulk, big-box tenants. Proposed speculative construction is expected to break ground early in 2020 with six developers planning large projects.
Occupiers and developers continued to increase their footprint in the Memphis area with more than 3.1 million square feet of big-box delivery recorded in 2019. Cooper Tire & Rubber Company, Kellogg’s and KRONE all occupied new bulk space during the year. Developers are scheduled to complete 15 buildings totaling 7.5 million square feet by the end of 2020 — 11 of which are speculative projects. Additionally — barring any delays — 4.1 million square feet of big-box speculative construction is scheduled to be delivered across eight buildings during the first quarter of 2020, with 32% leased in 2019, prior to completion. Big-box vacancy ended the year 130 basis points lower than the prior year and measured 4.6%. Tenants in the market increasingly look to grow their presence near Memphis’ important logistics hubs.
Fast-paced industrial development at a new high
Tennessee
NEXT: NORTHERN CALIFORNIA
PREVIOUS: KANSAS CITY
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The greater Bay Area is home to the Port of Oakland — a world-class international cargo transportation and distribution hub. Located on the mainland shore of San Francisco Bay, Oakland was among the first ports globally to specialize in the intermodal container operations that has revolutionized international trade and stimulated the global economy. It is situated near four major freeways and two transcontinental railroads. Occupiers of big-box space in the greater Bay Area can also take advantage of three cargo airports including Oakland International Airport — the 11th largest cargo airport in the U.S. — San Francisco International Airport and San Jose International Airport.
Major Logistics Driver: Port of Oakland
The greater Bay Area industrial market continues to benefit from strong demand from a wide range of users — many of whom are servicing the booming local economy and strong businesses expanding their e-commerce platforms. Home improvement, food industries and technology are also big drivers for demand of industrial space in the region. With vacancy rates throughout the region in the low-single-digit range, new speculative development is underway in virtually every submarket. Most new projects are being preleased prior to completion. Rising costs of construction, tight labor markets and rising land prices continue to put pressure on new development yields.”
Executive Vice President | Oakland
greig lagomarsino, SIOR
A total of 8.8 million square feet was under development at the close of the year, with nearly half of all projects concentrated in the Central Valley/Stockton area. Historically, nearly all big-box speculative developments have been leased prior to completion over the last four years, a positive indication that vacancy should remain low in the coming year, despite the addition of speculative product to the market. Taking rents ended the year at an all-time high of $7.84 per square foot per year NNN. However, taking rents fluctuate significantly depending on the market the building is located. The greater Bay Area taking rents finished year-end at $11.16 per square foot per year, while Stockton and Sacramento produce much more economic taking rents of $6.00 per square foot per year and $6.12 per square foot per year NNN, respectively.
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. E-commerce fueled demand for bulk product in the Northern California industrial market as occupiers race to service the growing young population in the area. Amazon signed approximately five million square feet of transactions in the greater Bay Area over the last year, with roughly 2.5 million square feet signed in the I-80/880 corridor.
Big-box activity continued to grow in Northern California
Northern
NEXT: NORTHERN-CENTRAL NEW JERSEY
PREVIOUS: MEMPHIS
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Surrounded by more than 61 million people within 250 miles of its core, the Northern-Central New Jersey market services the largest population concentration in the country. Because of its location and robust logistics advantages, occupier demand is strong within New Jersey’s industrial market. The Northern-Central New Jersey market is home to the busiest seaport on the East Coast of the United States — the Port of New York and New Jersey — which remains one of the top demand drivers for industrial real estate in the region. The Port of New York and New Jersey set a new record in October 2019, handling 666,381 TEUs, representing a 1.2% increase over the previous October record set in 2018 and was driven by the Port’s ability to welcome the world’s largest ships. In November, the Neopanamax container ship, Theseus, arrived at the Port’s largest facility, Maher Terminals. Theseus’ arrival was on the heels of Triton’s, which made its first visit to the Port earlier this year as one of the largest ships to enter the Port of New York and New Jersey.
Major Logistics Driver: The Port of New York and New Jersey
Occupier demand for Class A product continued to grow in 2019, widening the performance gap between Class A space and the overall market. Unrelenting demand has constrained supply for this product type. As a result of this heightened demand, both developers and owners continue to be proactive as New Jersey’s industrial market continues to grow at an unprecedented rate. Strong investment activity, together with a new wave of construction projects, demonstrates continued confidence in the New Jersey industrial market and indicates continued momentum in 2020 and beyond.”
Senior Managing Director | Parsippany
John Donnelly
Owners and developers continue to be active in response to strong market improvements, racing to break ground on new construction projects. Despite land constraints in parts of the state, new supply will continue to be added to the market. At year-end, 25 buildings were under development totaling 15 million square feet, while 14 buildings were delivered to market totaling 6.5 million square feet. Constrained availability has resulted in sustained average taking rent growth, up 5% year over year to $8.58 per square foot. Big-box warehouse new construction continued to garner a premium compared to the remainder of the market as space between 500,000 square feet and 750,000 square feet experienced the largest year-over-year jump and totaled $8.06 per square foot. This rate is up 25.9% over the $6.40 per square foot recorded in 2018.
Occupier demand remained strong for bulk industrial product with vacancies ending the year at 2.5%, the lowest big-box vacancy rate in the United States and second to Toronto in North America. The Northern-Central New Jersey market’s location and robust logistics advantages continue to attract tenants, with 3PLs taking a majority of the space. Big-box vacancies are projected to stay near record lows in the coming quarters. New Jersey’s industrial market continued to strengthen in the fourth quarter of 2019, as healthy demand for large blocks of space helped keep net absorption positive at 6.4 million square feet. The fourth quarter alone recorded 4.2 million square feet of leasing activity, bringing the year-end total to 18.8 million square feet — a 44% year-over-year increase setting an all-time record. This improvement can be attributed to the increase of big-box transactions during the last three months of the year. Overall, nine transactions greater than 200,000 square feet were signed during the fourth quarter.
Demand for big-box warehouses boosts end of year leasing activity
New Jersey
Northern-Central
NEXT: SOUTHERN NEW JERSEY-EASTERN PENNSYLVANIA
PREVIOUS: NORTHERN CALIFORNIA
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The Eastern Pennsylvania-Southern New Jersey (as well as Northern Delaware) market is one of the most strategically located in the county. The region is centrally located along the East Coast with access to four seaports: the Port of New York-New Jersey, the Port of Philadelphia-South Jersey, the Port of Wilmington (DE) and the Port of Baltimore. The region is served by two Class I railroads (CSX and Norfolk Southern) and five airports with major cargo handling capabilities. A complex highway network including I-78, I-80, I-81, I-83 and I-95, in addition to the Pennsylvania Turnpike and multiple U.S. highways transverse the region. More than 58 million people are within 250 miles of the market core.
Major Logistics Driver: Access to Four Seaports
The Eastern Pennsylvania, Southern New Jersey and Northern Delaware bulk market was in a healthy balance at the end of 2019, due to steady growth in both supply and demand. The increase in vacancy is likely to have a short duration as the deal pipeline suggests strong absorption in 2020. Following the explosive activity over the last five years, few large development sites are left in core locations along the I-78 and I-81 corridors. Developers in pursuit of large-format sites have shifted their attention to areas with historically minimal speculative development, most notably the Northeast PA submarket, the I-78 corridor in Berks County and the southern I-81 corridor between Carlisle and Hagerstown. Although most of the recent speculative construction along the I-95 and I-295 corridors in suburban Philadelphia and Southern New Jersey have been smaller format, there has been an increased developer interest in these areas for developments between 200,000 and one million-square-foot-plus projects.”
Senior Managing Director | Conshohocken
Mark chubb
Investment activity continued to be strong in 2019, yet transaction volume was down year over year. Multiple corporate and fund acquisitions impacted the ownership landscape over the year causing cap rate compression to 4.9% — the lowest value on record. Year-over-year signing rents increased 3.8% — a further suggestion that rent growth will maintain investor interest in the coming quarters. Bulk space deliveries reached record levels in 2019 and totaled 21.1 million square feet, a 27.5% increase year over year. Construction starts are down — particularly along the I-81 corridor — however 10 facilities were under construction at the close of the year, with more than three million square feet already spoken for by e-commerce and 3PLs.
The logistic advantages of the Southern New Jersey-Eastern Pennsylvania market continue to support demand in the area. New leasing and net absorption topped 2018 totals and a strong pipeline of pending deals indicates a vacancy drop is likely during the first half of 2020. Regional vacancy for big-box space increased 210 basis points to 8.5% year over year, as record construction levels were reached in the market. Spec completions were a major component of the increase, but the vacancy of previous generation retail distribution centers also had an impact. Five of the full building vacancies greater than 500,000 square feet are previous generation buildings.
Strong totals recorded for leasing, net absorption and investment activity
Eastern Pennsylvania
Southern New Jersey
NEXT: TORONTO
PREVIOUS: NORTHERN-CENTRAL NEW JERSEY
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The Greater Toronto Area (GTA) offers connectivity to two major railroads, the Canadian National Railway (CN) and the Canadian Pacific Railway (CP), with multiple intermodal yards located in Milton, Brampton, Caledon and Vaughan. Canada’s largest and busiest airport, Toronto Pearson International Airport, is also centrally located to the GTA markets and processes more than 45% of Canada’s air cargo. Strong tenant demand for industrial space continues to support the growth of the GTA region. The GTA represents the largest population center in Canada and draws international attention as the market of choice for companies looking to expand into Canada. The e-commerce sector in general is a strong source of demand with continued transition of supply chains to support this increasingly important channel. Canadian online sales represented 6.6% of total retail in Q4 2019 — compared to more than 20% in the UK. This means that consumers are buying international e-commerce and shipping product into Canada. Companies are partnering with 3PLs to improve customer experience and reduce transit times and cost of transport. As the largest industrial market in Canada, the GTA will continue to be a major driver for logistics within the country.
Major Logistics Driver: CN and CP Intermodals, Toronto Pearson International Airport
The Greater Toronto Area (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 square feet. 2020 will see a return to in-fill redevelopment in core GTA markets as market rents justify purchase prices.”
Executive Vice President, Sales Representative | Toronto West
Colin alves, SIOR
Future supply is expected to be constrained, due to a lack of serviceable land and Green Belt regulations. However, tertiary markets — such as Hamilton and Cambridge — have seen an uptake in industrial land purchases and spec developments. Historically, vacancy has not measured more than 6% for big-box facilities in the last 10 years. The overall rate remained low in 2019 and has hovered near 1% since 2017. With availability in bulk space measuring 1.6% at year-end, average taking net rents continued its upward trajectory and increased by approximately 30% year over year, averaging $8.81 per square foot.
Occupier demand continued to be strong in the Toronto big-box market, even with a constrained speculative development pipeline, particularly in projects greater than 400,000 square feet. Nearly six million square feet of facilities greater than 750,000 square feet were under construction at year-end, absent of any vacancy. Amazon, for instance, is building a one-million-square-foot fulfillment center in Scarborough to be completed in 2020 — and their seventh fulfillment center in Ontario. Demand for industrial space continues to outpace supply. At the close of the year, net occupancy gains totaled 4.1 million square feet, while just 2.6 million square feet of new product was added to the market. Given this, it comes as no surprise that 12.7 million square feet was under construction at year-end to satisfy the increased interest in bulk space.
Continuous momentum in the Greater Toronto area
Canada
NEXT: ATLANTA
PREVIOUS: SOUTHERN NEW JERSEY-EASTERN PENNSYLVANIA
