By James Breeze
Occupier activity across the Unites States continues to be robust, but it is not on par with the same time a year ago in bulk industrial space (100,000 square feet and larger). In the first half of 2019, 1,142 industrial (warehouse, manufacturing, flex) new leases, renewals and user sales were transacted, totaling 266.7 million square feet, a 12.6% decline from the first half of 2018. The average size of a bulk transaction was 234,000 square feet, much lower than the 261,000-square-foot average this time last year.
While e-commerce-only occupiers, like Amazon, remain on the top of minds of industrial landlords, they only made up 10% of the transactions signed in the past 12 months — in line with the percentage of total retail sales e-commerce accounted for. The top occupier remains third-party logistics and packaging companies (3PLs), signing 67 million square feet of transactions, 25% of the total transactions signed. 3PLs, who offer logistics and warehousing services for retailers and wholesalers who choose to outsource, remain the top occupier of industrial space because of the sheer volume of companies who service every industry in the business. While 3PLs were the top overall occupier, the food, beverage and pet supplier industry grew the most compared with the previous year, at a rate of 6.5% and they were the only occupier type to post a growth in year-over-year transactions.
E-commerce-only occupiers continue to require buildings much larger than other occupier types, as the average e-commerce transaction the past year totaled 422,903 square feet, nearly double the overall average transaction size for a bulk industrial building but much lower than the 510,840-square-foot average in the first half of 2018 because of a decline in transactions larger than one million square feet. For the 19th consecutive quarter, Amazon was the top e-commerce and overall occupier of industrial space, with a year-to-date total of 9.3 million square feet.
The Midwest beat out the Southeast as the top region of choice for bulk industrial occupiers, with 32% of the bulk transactions signed in the region. Both industrial and manufacturing occupiers continue to move into the market in droves because of the region’s pro-business climate and significant logistics advantages. The Southeast region is still doing well as occupiers move into the region to support the growing population. At the time of this report, more than 70 million people lived in the Southeast region, and this is expected to grow by a nation-leading 7% over the next five years. The West region finished in third thanks to continued strong demand in the Inland Empire, which remains one of the top markets in the country for bulk leasing activity.
Transaction volume for bulk industrial space will remain robust over the next 12 months because of occupiers’ increasing need for both regional and final-mile bulk distribution centers. While 3PL and retail-related distribution volume will remain robust, look for the strong growth that was showcased in the food and beverage industry to continue, as many of these occupiers are looking to expand and modernize their distribution and manufacturing networks. Population growth will keep occupiers in all industries looking at space in the Southern and Western portions of the U.S., while improvements and expansions of inland and coastal logistics hubs as well as strong domestic manufacturing in the Northeast and Midwest will keep demand strong in these regions for the foreseeable future.
James Breeze is the national director of Industrial Research for Colliers International, where he focuses on analyzing industrial property trends, compiling Colliers’ thought leadership and delivering timely market projections to provide clients with a leading edge in our industry.