CALABASAS, CA—There's no surprise here. Shoppers are purchasing differently than ever. But changes in their shopping patterns is also impacting the need for industrial space, as Marcus & Millichap reports in its newly released National Industrial Overview.

“The proliferation of online retail is creating structural shifts in the industrial sector through a reconsideration of retail space needs and supply chains,” the report states. As Ken Szady, national director—office and industrial—at Institutional Property Advisors, a division of Marcus & Millichap, explains, retailers are increasingly taking advantage of major savings by maintaining inventory off-site, a trend that bodes well for the warehouse/distribution sector.

This also benefits the consumer by driving that inventory closer to its final destination. “Cost savings found in storing merchandise in a warehouse and displaying products online are driving industrial space demand,” he explains. “In addition, transportation costs have risen, pushing retailers to grow their distribution networks and enable accelerated deliveries to customers shopping online. To fulfill this growing business segment, retailers are absorbing infill properties in order to cover the last mile of the supply chain, helping to compress industrial vacancy to record-low levels.”

Expressing the new retail/industrial dynamic in figures, net absorption of 253 million square feet this year will represent a vacancy compression of more than 30 basis points this year—to a new low of 5.3%, according to the report. That marks the second consecutive year that supply growth surpasses 200 million square feet. “Due to ecommerce, retailers are absorbing large amounts of industrial warehouse space, and this translates to more aggressive pricing in selling industrial assets,” Szady said. “Because of increased demand, vacancy rates are at all- time lows in major markets and driving cap rates lower.”

In fact dwindling availability has lifted the average asking rent to a new high, encouraging developers to reconfigure older manufacturing properties and build new projects in areas that have experienced limited construction. That “lift” in rental rates clocks in at a national average increase of 7.3%.

Obviously, filling the new demand is a major focus for industrial developers. Regionally, the report states, the top five markets for new completions are Riverside/San Bernardino (27.5 million square feet); Dallas-Ft. Worth (25.6 million); Chicago (15 million); Atlanta (14.8 million); and Houston (7.4 million).

The bottom line clearly is a healthy outlook for industrial, certainly through the end of the year. “Barring an unexpected interruption to supply chains and demand for goods manufactured in the US,” the report concludes, “the manufacturing sector is positioned to make positive contributions to the industrial property sector in 2017.”

CALABASAS, CA—There's no surprise here. Shoppers are purchasing differently than ever. But changes in their shopping patterns is also impacting the need for industrial space, as Marcus & Millichap reports in its newly released National Industrial Overview.

“The proliferation of online retail is creating structural shifts in the industrial sector through a reconsideration of retail space needs and supply chains,” the report states. As Ken Szady, national director—office and industrial—at Institutional Property Advisors, a division of Marcus & Millichap, explains, retailers are increasingly taking advantage of major savings by maintaining inventory off-site, a trend that bodes well for the warehouse/distribution sector.

This also benefits the consumer by driving that inventory closer to its final destination. “Cost savings found in storing merchandise in a warehouse and displaying products online are driving industrial space demand,” he explains. “In addition, transportation costs have risen, pushing retailers to grow their distribution networks and enable accelerated deliveries to customers shopping online. To fulfill this growing business segment, retailers are absorbing infill properties in order to cover the last mile of the supply chain, helping to compress industrial vacancy to record-low levels.”

Expressing the new retail/industrial dynamic in figures, net absorption of 253 million square feet this year will represent a vacancy compression of more than 30 basis points this year—to a new low of 5.3%, according to the report. That marks the second consecutive year that supply growth surpasses 200 million square feet. “Due to ecommerce, retailers are absorbing large amounts of industrial warehouse space, and this translates to more aggressive pricing in selling industrial assets,” Szady said. “Because of increased demand, vacancy rates are at all- time lows in major markets and driving cap rates lower.”

In fact dwindling availability has lifted the average asking rent to a new high, encouraging developers to reconfigure older manufacturing properties and build new projects in areas that have experienced limited construction. That “lift” in rental rates clocks in at a national average increase of 7.3%.

Obviously, filling the new demand is a major focus for industrial developers. Regionally, the report states, the top five markets for new completions are Riverside/San Bernardino (27.5 million square feet); Dallas-Ft. Worth (25.6 million); Chicago (15 million); Atlanta (14.8 million); and Houston (7.4 million).

The bottom line clearly is a healthy outlook for industrial, certainly through the end of the year. “Barring an unexpected interruption to supply chains and demand for goods manufactured in the US,” the report concludes, “the manufacturing sector is positioned to make positive contributions to the industrial property sector in 2017.”