Future Cities

2020 North America Industrial Big Box Review & Outlook


View of the Louisville city skyline
Louisville’s big-box industrial market continued its strong performance in 2020. Rents grew because developable sites are scarce. Louisville is a prime target for any company seeking a distribution presence in the Midwest. Having the world’s fourth busiest air cargo hub, combined with its advantageous geographic location to reach a large percentage of the population in a day’s drive, will continue to attract users to Louisville. Demand from all sectors, combined with GE’s Appliance Park and five auto assembly plants in the region, will continue to push demand and highlight Louisville as a major market for big-box development.
Kevin GroveSenior Vice President

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Nearly 30 million people—23% of them in the 18-to-34 age demographic—live within 250 miles of downtown Louisville, with a 2.5% projected growth rate over the next five years. Louisville reaches a higher population concentration within a 250-mile radius than other major industrial markets, including the Inland Empire, Dallas/Ft. Worth, Phoenix, Memphis and Kansas City.

Figure 1: Louisville Population Analysis

Source: CBRE Location Intelligence.

An influx of occupiers increased the number of warehouse workers in the region. According to CBRE Labor Analytics, the local warehouse labor force of 42,592 is expected to grow by 18.4% over the next 10 years. The average salary for non-supervisory warehouse workers is $13.77 per hour, 2% below the national average.

Figure 2: Louisville Warehouse & Storage Labor Fundamentals

Source: CBRE Labor Analytics.
*Median Wage (1 year experience); Non-Supervisory Warehouse Workers (forklift, warehouse workers).

Location Incentives

Over the past five years, there have been 278 economic incentives deals totaling more than $235 million at an average of $12,665 per new job in the Louisville metropolitan area, according to Wavteq.

According to CBRE’s Location Incentives Group, among the top incentive programs offered in Louisville is the Kentucky Business Investment Program (KBI), which provides income tax credits and wage assessments to businesses engaged in manufacturing, agribusiness, headquarter operations, alternative fuel, renewable energy or carbon dioxide transmission pipelines. To qualify, companies must create and maintain an annual average of at least 10 new full-time jobs for Kentucky residents during the length of the incentive agreement.

Another popular incentive program is the Kentucky Enterprise Initiative Act (KEIA), which provides companies with a sales and use tax refund for building and construction materials used to improve real property value. This refund is also available for research & development, data processing and flight simulation equipment.

Figure 3: Louisville Top Incentive Programs

Source: CBRE Location Incentives Group.
Note: The extent, if any, of state and local offerings depends on location and scope of the operation.

Logistics Driver

Louisville Muhammad Ali International Airport was recently named the world’s fourth busiest air cargo hub by Airport Councils International. The airport is home to UPS Worldport, one of the largest package-handling facilities in the world. E-commerce is significantly increasing cargo flights at the airport, where package volume grew by 22% year-over-year in 2019. As e-commerce’s share of total retail sales continues to increase, more distributors are expected in the region to take advantage of its air cargo capabilities.

Louisville’s strong operating fundamentals attracted more institutional investors and private equity funds last year. Cap rates for Class A core properties were in the +/- 5.0% range, but the next large core profile property should achieve a mid-4% cap rate. Sizable demand from investors should keep pricing strong and make Louisville a strong performer in 2021.
Chris RileyVice Chairman

Capital Markets

Figure 4: Cap Rate Comparison

Source: CBRE Research.

Supply & Demand

Louisville’s central location is attracting new occupiers, leading to robust demand and a plethora of new development. Nearly 7.8 million sq. ft. transacted in 2020, on par with 2019. Net absorption doubled year-over-year to 4.2 million sq. ft. Developers built 5.4 million sq. ft. of industrial product, nearly 2 million sq. ft. of which was in facilities of 750,000 sq. ft. or more. The 1.2 million sq. ft. of big-box product currently under construction is fully preleased.

Occupier demand was split evenly between 3PLs, e-commerce companies and traditional retailers and wholesalers. Louisville had one of the largest percentages of medical-use transactions, accounting for 17% of total volume. Continued demand will lead to new construction as the year progresses and add much-needed first-generation options, keeping transaction volume at a high level in 2021.

Figure 5: 2020 Occupier Transaction Market Share

Source: CBRE Research.

Figure 6: Transaction Volume

Note: Includes new leases, renewals, and user sales transactions 200,000 sq. ft. and above.
Source: CBRE Research.

Figure 7: Big Box Year-Over-Year Comparison

Source: CBRE Research.

Figure 8: Under Construction & Percentage Preleased

Source: CBRE Research.

Figure 9: First Year Taking Rents (psf/yr)

Note: Includes first year taking rents for leases 200,000 sq. ft. and above.
Source: CBRE Research.

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2020 North America Industrial Big Box

This report provides an in-depth overview of supply-and-demand fundamentals, demographics, logistics drivers, labor and location incentives for the top 22 markets in North America.