Top Tier Markets Continue to Drive Development Activity in the U.S.

Changes in the supply chain, healthy market fundamentals, and rising retail sales have all contributed to the strong development of industrial product. Developments in logistics and technology have driven demand for newer and bigger warehouse and distribution centers and developers have been aggressive in lining up build-to-suit deals and breaking ground on spec construction in order to support the demand. Meanwhile, almost all of the top markets are seeing construction levels return close to pre-recession levels.

TOP U.S. MARKETS SEE THE BULK OF NEW CONSTRUCTION
For the five years prior to 2009, top tier industrial markets in the U.S. accounted for an average of 78.0% of the nation’s total. However, during the recession, new development in these markets fell markedly as developers put the brakes on new construction as market fundamentals fell precipitously. In 2011, new construction began ascending at a brisk pace as developers once again regained confidence in the major markets. From 2012 to 2013, industrial deliveries rose by 65.0% and 2014 is on pace to exceed last year’s total.

BTS DEVELOPMENTS MORE COMMON THIS TIME AROUND
During the last peak cycle (2007-2008), spec development accounted for the majority of new construction. However, each year since 2012, build-to-suit construction in many of the top markets has been on the rise, accounting for 43.1% of deliveries last year and is forecast to represent 43.5% of the 2014 year-end total. Of the 33.1 msf of deliveries through mid-year in top markets, 15.3 msf were BTS, including 1.0 msf + facilities for PepsiCo in Dallas, Amazon.com in New Jersey, and Procter & Gamble in the Inland Empire.

THE PIPELINE WILL REMAIN STRONG
Of the 98.4 msf of product currently being built, 78.0% is slated for completion in 2014. Dallas, Inland Empire, and Chicago all have in excess of 10.0 msf in the pipeline while Houston, PA I-81/I-78 and Atlanta boast more than 5.5 msf of product under construction. Currently, 19 warehouse/distribution centers of 1.0 msf or more are being built, with all but one concentrated in the top tier industrial markets. Dallas, Inland Empire, Central NJ, and Houston are seeing mostly spec construction at the moment. Although development is ramping up, it still falls short of demand levels. Strong absorption and a shortage of top-tier industrial space will continue to fuel the rapid increase in spec construction.

COMPLETED CONSTRUCTION - TOP 10 MARKETS AS A % OF THE TOTAL U.S. INDUSTRIAL MARKET

COMPLETED CONSTRUCTION – TOP 10 MARKETS AS A % OF THE TOTAL U.S. INDUSTRIAL MARKET

NOTE: The Top 10 markets are: Chicago, Los Angeles, Inland Empire, New Jersey, Atlanta, Houston, Dallas/Fort Worth, Miami, PA I81/I-78 Corridor & Philadelphia

Source: Cushman & Wakefield Research. Only markets tracked by Cushman & Wakefield offices are included in this analysis

About Cushman & Wakefield/NorthMarq

​Cushman & Wakefield/NorthMarq is a joint venture formed in September 2011 by NorthMarq Real Estate Services and the Minnesota operations of global real estate services firm Cushman & Wakefield. By combining the talent of both organizations at the regional level with the global platform of Cushman & Wakefield, we offer clients the best combination of regional strength and global capabilities. The result: the leading commercial real estate firm by all measures in the Upper Midwest.
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