Where Demand for Industrial Space is Coming From Now

Logistics and parcel delivery remains No. 1 in million square feet requirements for industrial space but other industries have been making traction, according to a new report from JLL. The report showed that the automotive industry has seen its demand increase by more than 156% since 2021 to serve an influx of electric vehicle and battery manufacturing endeavors across the country. And demand for construction, machinery and materials companies grew by more than 41% this year because of the oversized pipeline of commercial and residential demand for housing. JLL added that with companies reevaluating their existing operations and addressing the COVID-induced supply chain disruptions, demand will continue to increase for manufacturing and automotive users. From a macro perspective, supply chain woes continue to create backlogs at the ports. The concept and practice of reshoring have come into play, and many occupiers have placed this at the forefront of their business operations. Tight availability, high rents, and port congestion along the West Coast have pushed many occupiers to the Southeast region and to ports along the East Coast, such as Savannah and Charleston, which are seeing record TEU volumes.” Industrial Outperforming Other Sectors Meanwhile, investor interest in industrial continues to flourish. Northmarq’s Jeff Tracy, senior vice president, Tulsa, tells GlobeSt.com that while there has “obviously” been an impact on cap rates, “we continue to see the broad industrial sector perform well in relation to the other sectors. “From an industry perspective, logistics and general light manufacturing continue to garner the most interest from buyers,” Tracy said. “Additionally, outdoor storage and assets that require quality outdoor yard space for operations are also popular amongst buyers at this point and seem to achieve the most aggressive pricing compared to other asset classes and sectors.” Tracy added that the Midwest and Southeast are performing the best in relation to other locations around the country. Robust Online Retail Sales Boosts Logistics Demand Northmarq’s Rob Gemerchak, vice president, Toledo, tells GlobeSt.com that despite the challenges in the economy, there continues to be strong user demand across a range of industrial sectors, including logistics, technology, and manufacturing. “Logistics demand is the strongest and is being driven by robust online retail sales and a national focus on supply chain efficiencies,” Gemerchak said. “While the largest industrial markets such as Chicago, Dallas, Atlanta, New York, and Los Angeles continue to grow and thrive, there has also been tremendous growth in several notable markets such as Indianapolis, Kansas City, Phoenix, and Columbus. “Looking towards the future, we expect that industrial demand and development will follow population growth in regions such as the Southeast and Southwest, as companies seek to locate near consumers and with strategic access to a growing employment base.” Charleston, Savannah, Jacksonville E-Commerce Magnets Avery Dorr, vice president at Stonemont Financial Group in Atlanta, tells GlobeSt.com that he’s seeing “a significant bump” in demand in port markets across the country, with the East Coast outpacing the West in recent years. “The practice of reshoring is more important as supply chain woes continue to create backlogs at the ports,” according to the JLL report. “Tight availability, high rents, and port congestion along the West Coast have pushed many occupiers to the Southeast region.” This year the Southeast region was the top market in terms of demand, accounting for 240 msf in requirements. Dorr said that Charleston, Savannah, and Jacksonville have been magnets for e-commerce users and third-party logistics providers, and Stonemont continues to source out new speculative development opportunities in those markets. “Florida and Texas have been at the top of our radar due to the tremendous population growth, deep labor pools, and overall business-friendly climates in both states,” Dorr said. “Investor appetite in these areas is particularly strong and we anticipate activity will remain healthy there in 2023 despite recent economic headwinds.” High-Barrier, Major Urban Markets Should Thrive Ryan Nelson, Managing Principal of Turnbridge Equities, tells GlobeSt.com that high-barrier-to-enter, major urban markets will see the greatest industrial growth in 2023. “Businesses are striving to be as close as possible to the end user, and this has made urban markets with high population densities and land constraints a hotspot for last mile logistics,” Nelson said. “Recently, Turnbridge topped out Bronx Logistics Center, the largest industrial development in the NY Metro Area, set to be complete in Q3 of 2023, which is one of a very limited number of new industrial projects that will be delivered in the market, given land scarcity, construction costs, and debt capital markets dislocation.” […]

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