CHICAGO—Last year at this time experts predicted the US industrial market would have a great 2017, and the experts were not wrong. Even though absorption slowed in the second and third quarters, tenants made up for that by picking up the pace and absorbing about 80 million square feet in the last three months of the year, pushing the year's total up to 245 million, according to a new report from Chicago-based JLL.
Perhaps more significant than the raw numbers was who took the space. JLL notes an escalation of mid-sized deals, both between 100,000 square feet and 250,000 square feet, and those between 250,000 and 500,000 square feet. The latter group went from comprising about 20% of the deals in 2016, to well over 30% in 2017.
“Economically we're doing well, and you're seeing smaller and mid-sized businesses continue to take space and expand operations,” Aaron Ahlburn, a senior vice president and director of research for JLL, tells GlobeSt.com. That's a big change from a few years ago, when larger companies were the ones taking risks.
The smaller deals may also reflect a shift in the world of e-commerce. In the past few years, giants like Amazon and the major 3PLs have established massive distribution centers around major metro areas, but today many focus on the next logical step, creating smaller “last-mile” facilities that can speed product delivery to consumers.
“We were expecting another solid quarter,” Ahlburn adds, and “the level of absorption was a little bit of a surprise.” There may have been some uncertainty in the middle of 2017, and the significant fourth quarter spike may simply have been the result of many users putting off decisions for a few months.
This activity helped push the overall US vacancy rate into historically-low territory. It fell 20 bps in the fourth quarter and now stands at just 5.0%, or less than half the rate in the first quarter of 2010. And Ahlburn says it's 240 bps below the lowest rate reached in late 2007/early 2008.
Furthermore, Mehtab Randhawa, a JLL vice president and associate director for the industrial property sector, says the vacancy rates for all of the markets studied by JLL are now under 10%. And she believes the market still has room to run. Developers delivered 68 million square feet in the fourth quarter and 47.5% is pre-leased. That's a slight decline, but still a healthy number. And spec projects were 75.5% of all deliveries, and also leased at a healthy rate.
US industrial rents hit $5.50, a jump of 5.4%, and driven by properties in top logistics markets, which operate at a sub-3.0% vacancy rate, JLL expects “continued competition for quality space and added pressure on rents through 2018.”
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
