Los Angeles — July 8, 2014 –Robust demand from e-commerce companies and traditional retailers for the limited supply of new, “big-box” facilities is reshaping the U.S. industrial market, resulting in strong leasing for Class A space, build-to-suit development and the return of speculative construction, according to the latest report from CBRE Group, Inc., E-Commerce and the Changing U.S. Industrial Landscape.
“Demand from e-commerce companies has played a leading role in the recovery of the U.S. industrial real estate market over the past two years,” said Scott Marshall, Executive Managing Director for Industrial Services, Americas, CBRE. “During the first quarter of 2014, virtually all U.S. markets were buoyed by strong demand for distribution space from the e-commerce sector. Supply chain demand was centered in major inland and coastal port markets, resulting in strong absorption and shrinking availability in markets such as Atlanta, Chicago, Miami and Houston.”
As big-box facilities are in short supply, there is a supply and demand imbalance in the Class A market. Developers have responded by aggressively inking build-to-suit deals and breaking ground on approximately 45.7 million sq. ft. of speculative development. But, with 30 million sq. ft. of active e-commerce requirements, and demand likely to remain strong over the next few years, supply will not catch up to the demand anytime soon.
“By 2017, online sales could account for more than one-tenth of all U.S. retail sales, up from 6.2% in 2013,” said Adam Mullen, Head of Supply of Chain Services, CBRE. “To keep up with growing demand, e-commerce companies and, increasingly, traditional retailers are making major investments in big-box facilities that function both as warehouses to store goods and distribution centers to fulfill online orders.”
The Inland Empire is among the core distribution markets in the U.S. experiencing a boost in development activity. More than 16 million sq. ft. of industrial facilities is under construction in the Inland Empire, accounting for approximately 14% of all industrial space being built in the U.S. Of the 34 projects currently under construction, 29 of them are at least 100,000 sq. ft. in size, many of which are specifically designed to handle e-commerce order fulfillment.
Other findings of the report include:
- Opportunities abound for owners of functional, well-located space and for landlords of vacant bulk space who are able to make an investment to upgrade to current e-commerce standards. Such investments should pay off, as the extremely constrained space market, coupled with rapidly growing demand, will likely result in significant rent spikes through 2015.
- An anticipated increase in speculative development of extra-large big-box facilities (500,000 sq. ft. or larger) that can be subdivided to smaller spaces, giving the flexibility to accommodate a variety of e-commerce and distribution users.
- Secondary markets should see more activity as e-commerce users seek distribution solutions closer to customers not located in the major metropolitan areas.
- E-commerce companies will take smaller infill properties in major metros as a final stop for products as same-day delivery service becomes more prevalent.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2013 revenue). The Company has approximately 44,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through approximately 350 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.