Economy Watch: Big Box Industrial Strength to Continue in ’17

Fundamentals for the property type are exceedingly strong, particularly in core markets, and there is still plenty of room for growth this year, according to a new Colliers International report.
Source: Colliers International Big-Box Market Report, 2016 Year-End Review & Outlook
Source: Colliers International Big-Box Market Report, 2016 Year-End Review & Outlook

For big-box industrial properties in core markets nationwide, fundamentals are exceedingly strong, according to a new report by Colliers International. Last year saw all-time highs in net absorption, leasing, product under construction and product delivered. This year, robust development will probably keep vacancies from rising much, which will slow growth in effective rents (but not put downward pressure on them).

The report covers the core industrial markets of Atlanta, Chicago, Dallas, Los Angeles, northern New Jersey/eastern Pennsylvania and Toronto. Driving demand in all these markets is a “supply chain renaissance,” as the report puts it, driven by e-commerce that continues to push retailers, wholesalers and third-party logistics companies into newer and larger fulfillment centers.

In 2016, 87 million square feet of new industrial was completed in these markets, 67 percent of which was spec space. That compares with 65 million square feet in 2015, and 75 million square feet that’s under way for a 2017 completion. All together, 105 million square feet were leased in 2016, up 9.6 percent from the year before. Effective rents reached $4.66 per square foot in 2016 in the core markets, up 10.9 percent compared to 2015. Despite the increase, rents leveled off in the fourth quarter due to higher amounts of vacant space on the market.

Looking ahead, the report noted, “It’s clear that e-commerce will endure as a driving force of the industrial real estate market for years to come. Yet in many ways, such as supply chain management, e-commerce is still in its infancy and there is still plenty of room for even greater impact on the industrial market.”