Tightened monetary policy and moderating e-commerce volume have led to cooling demand for big-box industrial facilities, according to Colliers' Mid-Year 2023 Industrial Report. There's perhaps no bigger sign of overall industrial choppiness than the largest market in the country posting its first negative absorption in 13 years, but fundamentals overall remain solid.
"Many people were surprised that the Inland Empire, one of the country's most desirable markets, experienced negative absorption of 3.9 million square feet," says Stephanie Rodriguez, Colliers' national director of Industrial Services | US.
In general, though, she doesn't see room for alarm: rental rates increased 25% year-over-year, vacancy remains tight, and the ports of Los Angeles and Long Beach remain important to domestic supply chains. For the country overall, she notes that other markets are delivering on strong fundamentals, and the outlook remains favorable.
Mixed Signals from the Inland Empire
Multiple pre-leased buildings scheduled to deliver in the second half of 2023 will trigger positive occupancy gains for the Inland Empire. Despite the region experiencing a negative absorption of around 3.9 million square feet, big-box products contributed to only around 25,000 square feet.
High-profile vacancies include a more-than 1.025 million-square-foot building left from the Bed, Bath & Beyond bankruptcy and UPS moving out of a similar-sized building. In total, Colliers reported four buildings exceeding 500,000 square feet that are vacant in the market.
On the other hand, Amazon's largest US facility is slated for delivery in the Inland Empire before the end of the year. At nearly 4.06 million square feet and multiple stories, the tenant is the leading occupier in the market, with a total of 31 facilities spanning 27 million square feet, according to Colliers.
Power in Fundamentals
A large, high-demand population and market access continue to propel industrial markets. Those fundamentals helped both Dallas and Eastern PA/Southern NJ to eclipse 10 million square feet in industrial occupancy gains, according to Colliers. Dallas's strong population growth supplies robust labor, and the metro's quick access to rail, air and truck transportation hubs ties it all together.
"Home to a global inland port with two large-scale cargo operations, Dallas leverages links to Mexican markets and east-west arteries, important drivers for this logistics hub," says Ward Richmond, Colliers' vice chairman.
How prime is the position of the Eastern PA/Southern NJ market? Approximately 58 million people live within 250 miles of the market's core, which is served by four seaports and two Class-I railroads.
"Not only is the robust transportation infrastructure driving demand in this region, but the population density also makes it a strategic location for last-mile occupiers," says Mike Spears, Colliers' EVP and principal.
Still Favorable Forecast
Core US markets continue to be viewed favorably by many big-box occupiers, but some secondary markets are emerging as strong contenders for major logistics hubs. Third-party logistics providers have risen to the top for bulk transactions as e-commerce stabilizes. Within major markets, some users are evaluating micro-fulfillment centers to be closer to consumers.
"There isn't the same frenzy to lease the larger spaces, but we expect continued demand for this type of product," says Rodriguez. "There are still occupiers looking to modernize their facilities and increase operational efficiencies. Ultimately, a slow-down in development will allow the market to absorb the big-box space currently being delivered."
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Brian A. Lee
Brian A. Lee is an Atlanta-based freelance writer and former editor of Western Real Estate Business magazine. The Wake Forest and University of Georgia graduate has covered commercial real estate since 2000.
