5 Industrial Markets With the Biggest Pipelines

While steel, plywood and other building materials are skyrocketing, industrial development continues to remain strong, currently exceeding 300 million square feet nationally, according to a new report by Avison Young. In addition, developers completed nearly 280 million square feet of new deliveries in the US in 2020.

Dallas-Fort Worth, the Inland Empire, Chicago, Atlanta and Houston had the most industrial space under construction in Q1 2021.

Dallas-Fort Worth had 28.1 MSF under construction at Q1 2021, making it the top market. In 2020, it had a record-setting 31.5 MSF completed, with more than 6.2 MSF completed each quarter since Q1 2020. In addition, more than 26.9 MSF were under construction each of the last five quarters. Even with the massive building spree, vacancies have remained flat due to a combination of demand for speculative projects and a few significant build-to-suits that were delivered.

Following Dallas-Fort Worth is the Inland Empire, which has 24.4 MSF under construction. Over the last five quarters, the area posted between 3.5 MSF and 6.1 MSF of completions. In Q1 2021, 4.2 MSF had delivered. It also had 17.9 MSF or more under construction at any given time during the past 15 months. Avison Young says a surge in cargo flow at the end of 2020 led to increased warehouse and distribution needs in the region.

The major Midwestern hub, Chicago, was next with 4.2 MSF of new construction completed during Q1 2021 and 18 MSF in the pipeline. Avison Young says strong tenant demand from large corporate healthcare, retail and e-commerce businesses is driving demand. In addition, demand for last-mile distribution space has pushed activity into infill locations throughout Chicago and some outlying submarkets.

Eleven properties larger than 20,000 square feet and totaling 4.4 MSF delivered to the market in Q1. With five of those buildings, 100% leased, the overall occupancy is 86%.

The fourth-place market, Atlanta, set records in 2020 and e-commerce construction is still driving growth in 2021. Almost 18 MSF delivered in 2020 and another 17.4 MSF is under construction at Q1 2021. At the end of Q1, Atlanta had its largest amount of space underway at 28.2 MSF. Forty-three percent of that was preleased. If projects on track are completed, Atlanta could see the most new inventory ever in 2021.

Houston came in fifth with 13.7 MSF in the pipeline in Q1 2021 and 3.2 MSF of deliveries in Q1 2021. Eight industrial buildings 600,000 SF or larger are slated to come online in 2021. Most are already leased to large retail tenants. Seven of the ten largest projects under construction are 100% preleased and constitute 64% of the pipeline.

Rising Costs, Rising Rents 

Overall, construction costs rose 12.8% from April 2020 to February 2021. Driving those increases were lumber and plywood (62% increase), copper and brass mill shapes (37%) and steel (20%), according to the Associated General Contractors of America (AGC).

But surging rents will go far to mitigate these costs. Prologis Research expects rent growth for industrial properties to grow 6.5% in 2021 and that robust demand could lead to an acute lack of logistics space, the company noted.

“Taken together, these trends likely portend a challenging leasing environment through the near term, making advanced planning for upcoming requirements crucial for successful network expansion,” Prologis advised.