Category: Industrial

The Tightest Industrial Markets in the U.S.

A look at the major industrial markets currently with the lowest vacancy rates.

The continued proliferation of e-commerce remains a boon for the industrial sector. In all, North American industrial absorption is forecast to register 495 million sq. ft. in 2019 and 2020, with 550 million sq. ft. of new product delivered by year-end 2020. IN addition, vacancies will remain at around 5 percent and average asking rents will rise from $6.24 per sq. ft. all the way to $6.68 per sq. ft. by the end of 2010.

Those were some of the conclusions in Cushman & Wakefield’s recently released 2019 North American Industrial Outlook, which line up with the sentiment expressed in NREI’s recent industrial research study.

According to the firm, “Market conditions will encourage development in port-proximate markets, intermodal hubs, and inland population centers but supply will not overwhelm demand.”

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E-commerce Returns Provide Growth Opportunities for Industrial Real Estate Developers

The high rate of e-commerce returns is creating new opportunities for industrial real estate developers and investors.

Of the $500 billion in online U.S. sales last year, $75 to $150 billion worth of merchandise was returned, including $37 billion returns from holiday sales, according to a recent reverse logistics report from commercial real estate services firm CBRE. In fact, returns for online sales tend to be two to three times more frequent than returns for in-store sales: 15 percent to 30 percent of online purchases are returned compared to 8 percent of merchandise bought in-store.

A large number of these returns can be attributed to retailers sending customers the wrong size or wrong product, or giving an inaccurate description of the product, as well as product defects. Regardless of the reason, however, returns put enormous stress on the already tight warehouse space, labor and distribution networks that are not designed to handle reverse flow inventory and are eating up retailer profits, notes David Egan, CBRE global head of industrial & logistics research.

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Former Urban Big-Boxes, Class-B Office Buildings Are Being Converted to Last Mile Industrial Space

Investors are redeveloping empty retail big boxes, class-B office buildings in urban locations into last mile industrial facilities.

The limited supply of urban industrial inventory available for “last mile” e-commerce distribution space is causing investors and end-users to get creative by re-positioning other types of real estate with failed uses or shrinking demand, according to a JLL report, Urban infill: the route to delivery solutions.” The report notes that annual total e-commerce deliveries have more than tripled over the past five years, but development of new urban industrial infill assets has remained relatively flat.

Despite dwindling opportunities in urban locations, investors remain interested in the 18 percent sales price premium last mile industrial assets command over “first mile” locations, and the higher rents users are willing to pay in order to be near their customer base.

Older office buildings, underused parking structures, abandoned strip centers—even former churches—are now among properties being re-positioned as last mile fulfillment centers. E-commerce fulfillment centers are actually “terminal facilities,” as trucks deliver merchandise there to be broken down for home delivery trucks and other types of vehicles, according to Mark Glagola, D.C.-based senior managing director for industrial services with Transwestern. He notes that these distribution facilities are especially critical for time-sensitive merchandise like food products.

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