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07/17/2018
Industrial Real Estate Market Still Red Hot, Despite Low Supply
Industrial real estate continues to outpace other sectors, boasting record-low vacancy rates and a flurry of new development. Vacancy rates averaged 4.8% nationally, JLL reported, and industrial rents have seen 5.3% year-over-year growth. Fueled by the rise of e-commerce and the growing manufacturing sector, the need for warehouse and distribution shows no signs of slowing down.
For CohnReznick CEO David Kessler, it is an exciting time to be investing in industrial real estate.
“There is unbelievable absorption for warehouse distribution space,” Kessler said. “Some of the biggest markets are New Jersey, Dallas, Atlanta and Chicago as far as the most activity is concerned.”
From the push for last-mile facilities to Florida’s renaissance as an industrial hotspot, Kessler touches on the sector’s continued growth.
Preference for small-to-midsize space
Demand for industrial space within urban centers in New Jersey, Texas and Georgia has grown proportionally with an increased interest in last-mile delivery. Rather than search for large, big-box spaces on the outskirts of major cities, industrial tenants and investors have opted for smaller warehouses closer to consumers. To enter these areas, industrial tenants have to think small.
“Eighty percent of new development is small to midsize space between 50K SF and 500K SF, so that is a good indicator of where the user demand is,” Kessler said.
Speculative delivery has also been on the rise, making up 75% of new completions, JLL reported. The total inventory of under-construction industrial projects in the U.S. is over 230M SF, with the highest concentration of new development in Dallas, Inland Empire in California, Pennsylvania and Atlanta, Kessler said.
Florida’s industrial expansion
As more established industrial centers like Dallas and Inland Empire struggle to offer sufficient space, other hotspots have emerged throughout the country. Along the Florida coast, from Jacksonville to Miami, bedroom communities and major cities alike have seen increasing developer interest in infill warehouse space as demand outpaces supply. Miami-Dade's industrial vacancy rate, for instance, was 4.7%. Palm Beach was at 3.1%, a record low.
“Industrial development in Florida is on the rise because land prices, increased population growth and absorption has not yet come to the peaks that other areas have,” Kessler said. “It is consumer-oriented and fundamental and it was an underserved area in the past.”
In Miramar, Florida, the hometown of actor Johnny Depp, industrial space at Miramar Megacenter Park recently attracted a 35K SF lease from aviation equipment vendor FliteLine. HapCor, a distributor of grocery products, also relocated its headquarters from Davie, Florida to 32K SF at the Miramar Park of Commerce last year. The business park boats access to the Florida Turnpike and every major highway in South Florida, as well as nearby shipping ports and airports.
“From Jacksonville to Palm Beach, those are areas that are on the rise as far as the cycle of development and demand,” Kessler said. “It is a rising tide, whereas some other areas like California are more on the peak side.”
Transmodal hubs and mixed use
Industrial developers in Florida and the rest of the U.S. are also looking for areas that not only are close to highways but also provide workers with retail options, office space and even residential offerings.
“In some large, transmodal, industrial complexes, like in a port, for instance, millions of square feet are being built to enhance the logistics operations of a seaport,” Kessler said. “There is also a mixed-used phenomenon, where you used to have these big industrial warehouses.”
Transmodal centers offer access to other shipping methods like rail, truck or plane, making delivery logistics more efficient. Providing a nearby space for workers to live and shop also incentivizes people to work in the area.
While demand for industrial spaces continues to outstrip supply, Kessler sees absorption keeping pace over the next few months. Institutional players have also entered the market, scooping up large industrial property portfolios. Prologis gained a 71M SF U.S. portfolio after its merger with DCT Industrial Trust. It also marked South Florida as one of its high-growth markets for industrial development.
“From an economic standpoint, it is an attractive sector because it is easy to get tenants in and tenant improvement allowances are low,” Kessler said.
This content was produced in collaboration with Bisnow and originally appeared on Bisnow.com.
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David Kessler
CPA, Partner, Chief Executive Officer
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CohnReznick's Commercial Real Estate Industry Practice
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