Overall vacancy in the top markets shows demand for clear heights greater than 30’ is growing faster than warehouse/distribution buildings with lower clear height. Construction is ramping up to meet the rising demand for high-quality, Class A warehouse/distribution space.
WAREHOUSE/DISTRIBUTION UNDER CONSTRUCTION
Demand for newly built, large distribution centers has been particularly robust in this recovery and new industrial construction activity has been rising. Industrial projects with 30’ clear height or greater account for 78.3% of the total under construction in the U.S., much of that driven by e-commerce space demand. In Toronto, the e-commerce and retail sectors continued to support demand for space and industrial construction permits in 2013 are up by 26% over 2012, an indicator of growing optimism.
RETAIL SALES PROJECTIONS SUGGEST EVEN GREATER DEMAND
National retail sales are expected to grow 5.8% during 2014. With online sales anticipated to reach $370 billion by 2017, the industrial real estate market will be a main beneficiary as greater sales will mean additional demand for e-commerce facilities. Recently, Home Depot Inc. opened the first of three expected e-commerce warehouses in U.S, all part of a $300 million investment plan to boost e-retail, warehouse and supply chain capabilities. Home Depot says it expects to build 3 million square feet of fulfillment space.
Leasing activity in buildings with 30’ clear heights or greater accounted for 44.2% of the total warehouse/distribution leases in the top ten U.S. markets in 2013 (172.6 msf). The average lease size was 162,963 sf. Companies that leased more than 500,000 sf at a single facility last year include: Amazon.com, Procter & Gamble, Walmart, LG Electronics, Burlington Coat Factory, Williams Sonoma, DSC Logistics, Samsung Electronics, Bridgestone, Menlo Logistics, National Freight Industries, Owens & Minor, Koch Industries, Frontier Logistics, Sygma Network and Port Logistics.