(Save the date: RealShare Chicago comes to the Union League Club of Chicago October 23.)
CHICAGO-There’s five clear reasons why the class A, 400,000-square-foot and larger industrial market still registers less than 10% vacant, with the traditional coastal markets leading the strong numbers. However, even the distribution hubs such as Chicago posted low vacancy and surprisingly strong absorption, according to reports by Jones Lang LaSalle.
The national large-box industrial market, particularly the distribution centers, have increased in demand because of a lack of supply, an influx of new foreign capital but reductions in foreign supply chains, the explosion of e-commerce and solid US infrastructure, JLL EVP Tim O’Rourke tells GlobeSt.com. There’s been two years of solid consecutive quarters of positive absorption, but the economy and basic fundamentals have kept the absorption down below pre-recession levels.
“There’s just been really nothing built in the past four years, keeping vacancy low, running at 3% in a number of the major logistics markets” O’Rourke says. “Even in the Inland Empire, vacancy only peaked at 14%.” He says the US industrial investment market is ripe for growth, with overall sales volume for 2012 likely to be up to $45 billion.
Foreign capital has sought out the US to buy industrial properties, such as Goodman Group’s recent partnership with Irvine, CA-based Birtcher Development to invest $1.5 billion in the core US markets. The partnership will focus on West Coast logistics hubs of Los Angeles, San Francisco and Seattle, and East Coast markets including New York, New Jersey and Central Pennsylvania.
The growth in e-commerce use of distribution facilities has also benefited the industrial markets. JLL estimates one-third of all demand for big-box space is tied to e-commerce retailers. Retailers tapping multiple channels to sell merchandise are finding it more cost-effective to increase online logistics operations rather than open more traditional stores, resulting in a new distribution model. “Amazon just leased two one-million-square-foot centers in California, where they reached a deal on the sales tax,” O’Rourke says.
He says most of the growth is taking place in the core East and West Coast port markets. However, JLL also recently released its Q2 industrial figures for Chicago, the unofficial Midwest capital, and the amount of positive absorption is shocking. The Chicago markets experienced 12.3 million square feet of total net absorption, tripling the amount of absorption from the first quarter.
Keith Stauber with JLL tells GlobeSt.com that the local supply crunch has also helped keep the vacancy down, at about 11%, in a region that’s still seeing low job numbers. “We’re certainly tied in here to the national success, being one of the largest ‘port’ areas with our intermodal hubs,” he says. “There’s the feeling of caution, but we still get the sense that companies want to move forward. With distribution, we’re at 6.5 million square feet of absorption this year, and we think it can get to 10 million square feet, that would be a strong finish to the year.”
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