16 DC VELOCITY JANUARY 2017 www.dcvelocity.com
newsworthy
CBRE, JLL: U.S. industrial
property demand to stay strong
in ’ 17
The industrial property market will continue its multiyear
surge in 2017, fueled in large part by the rapid growth of
e-commerce, according to separate forecasts from two of
the country’s biggest commercial real estate and logistics
services companies.
Los Angeles-based CBRE Group Inc. said the average U.S.
industrial rent, which was on track to set an all-time high
at the end of 2016, will increase by another 5 percent in
2017. The company also expects net demand—the amount
of new leases minus vacated space—to outpace a slow but
steady increase in new construction, a trend that has been in
place for seven consecutive years. This could drop vacancy
rates in 2017 to levels nearing 5 percent, which could eclipse
the multiyear lows set in 2016.
Chicago-based JLL said more than 250 million square feet
will have been leased in 2016, an all-time record. “Many
companies continue to expand, while others adapt and perfect their supply chains to be closer to urban cores and their
customers, driving record-low vacancy rates even further
and increasing leasing rates in response,” said Craig Meyer,
president of JLL’s Logistics and Industrial Services Group.
With new construction still trailing demand, Meyer predicted a “creative and adaptive re-use of assets” that will
include multistory construction in or near urban locations
in order to be closer to end customers in densely populated
areas.
JLL said several trends will drive growth this year, among
them a revival in infrastructure development in the Rust
Belt that will require more warehouses to store material,
continued interest among institutional investors in U.S.
industrial property, and the rise of so-called tertiary markets
such as Charlotte, N.C., Tampa Bay, Fla., and Kansas City,
Mo. Interior markets may experience increased demand
as scarce space at or near air- and seaport gateways either
reaches full occupancy or becomes too expensive for most
businesses to lease.
In addition, smaller urban core warehouses and fulfillment centers, reconverted assets, and multistory warehouses could become “last-mile” fulfillment and delivery
solutions for many companies in 2017, JLL said.
THE E-COMMERCE EFFECT
The 2017 forecasts are not much of a surprise, as virtually
every real estate services firm and consultancy has forecast
that the pace of growth would not level off until at least
2018, as the market becomes more saturated with supply
and the economy turns down again. However, e-commerce’s growth, which appears to be in the early innings,
could mitigate any negative impact of an impending down-cycle. E-commerce accounts for only 9 to 12 percent of total
U.S. retail sales.
E-commerce will generate roughly 40 million square feet
of new demand for U.S. industrial space each year through
2020, CBRE said. That figure is based on the industry rule
of thumb that each $1 billion of new online sales volume
generates demand for another 1 million square feet of warehouse and distribution space. U.S. online sales will increase
by 9. 3 percent annually over the next five years to $523 billion a year, according to data from research firm Forrester
that CBRE used in its calculations.
“E-commerce users typically need two to three times
as much space as a traditional industrial occupier due to
e-commerce’s use of more labor and automation,” said
Adam Mullen, CBRE’s senior managing director of indus-
trial and logistics for the Americas. “Thus, as e-commerce
growth continues unabated, industrial market conditions
will remain favorable throughout 2017.”
Even when cyclical growth levels off, the structural
changes wrought by e-commerce will drive the industrial
market toward what CBRE called a “new baseline” of activ-
ity. “While the market eventually will lose momentum, it
will then settle into a new normal rather than retreating
to levels predating the spread of e-commerce,” said David
Egan, CBRE’s head of industrial and logistics research, the
Americas.
go figure …
15–30%
The percentage of all domestic e-commerce orders
that will have been returned during 2016.
SOURCE: CBRE GROUP INC.
Due to tremendous expansion in
the American market, Interlake
Mecalux has moved into a new
113,021-square-foot distribution
center in Dallas. … Prologis Inc.
will start construction this year on
a three-floor 580,000-square-foot
warehouse just outside downtown
Seattle. The facility is scheduled to be completed in
2018.
ground breakers
INTERLAKE MECALUX
