North America Report:  Industrial Logistics & Transportation Solutions | 2017 Year-end Review and Outlook

North America Report
Industrial Logistics & Transportation Solutions | 2017 Year-end Review and Outlook

Introduction

A variety of factors across North America are fueling continued robust demand for big-box industrial facilities. Core markets including the Inland Empire, Atlanta, Dallas-Fort Worth, Chicago, Northern-Central New Jersey, Eastern Pennsylvania-Southern New Jersey and Toronto continue to post robust fundamentals, but the largest growth is in emerging secondary markets near the fastest-growing population centers, and most utilized logistics hubs in the region. 

In this unique interactive report, we examine the strength of the North American big-box industrial market in 2017 which includes the seven core North American big-box markets, as well as seven emerging secondary markets. We will go over 2017 fundamentals, take a look at demand factors including demographics and logistics capabilities and assess what lies ahead for 2018.

Unless otherwise specified, all report data is for all of 2017.

Industrial Services and Research

Pete Quinn, SIOR
National Director, Industrial Services | USA
+1 317 713 2107
pete.quinn@colliers.com

James Breeze
National Director, Industrial Services | USA
+1 602 222 5184
james.breeze@colliers.com

Jack Rosenberg, SIOR
National Director | Logistics and Transportation
+1 847 698 8208
jack.rosenberg@colliers.com

What constitutes a big-box building?

200,000 SF or larger industrial building

Primarily used for distribution

Ceilings heights of 28' clear or greater

Pre-cast or tilt-up concrete construction

North America Overview

The North American big-box market is riding a wave of robust demand brought on by a solid U.S. economy and, of course, the rapid rise of e-commerce. E-commerce demand continues to grow and now represents over 10% of total non-auto retail sales. This demand continues to fuel activity with overall net absorption hitting an all-time high of 116 million square feet, 2.4% higher than 2016. Record amounts of absorption kept the overall vacancy rate at an all-time low of 6.9% despite a record 128 million square feet of new development. 

Activity continues to be dominated by Amazon.com, which leased 10 buildings totaling just under 8 million square feet in the 14 markets highlighted in this report in 2018. Continued demand from Amazon along with other retailers, wholesalers and third-party logistics companies will keep development high in 2018 as a record 120 million square feet is currently under construction .

On the investment side, capitalization (cap) rates dropped to a record-low 5.8% in 2017, with many core markets posting cap rates at or near 5%. While demand for big-box product was solid in core markets, the decreased amount of product to purchase in these markets has pushed investors into secondary markets, where fundamentals are improving and there are more opportunities for higher yields. 

While we predict 2018 fundamentals to remain robust, there are headwinds to look for. The issue causing the greatest concern is the availability of labor. The demand for labor has been magnified by e-commerce distribution’s heavy employee counts and significant seasonal spikes in demand. Big-box e-commerce occupiers can require two to three times the amount of labor as a traditional distribution user needs. With labor demand increasing, more companies will require more advanced site selection processes to grind down the exact submarkets where available labor can be found, and this process in site selection will gain importance over a submarket’s logistics advantages and building functionality.

Trade policies also bear watching. When we entered 2017, U.S. trade policy seemed to be on solid ground, NAFTA was making headway in negotiations and trade pacts with China were solidifying. This changed the second half of 2017 with word that the future of NAFTA was less certain and tariffs were issued for foreign products including solar panels and appliances. While policies that affect NAFTA and trade with Asia have not been set in stone, they both warrant watching and could have a major impact on demand in late 2018. 

Despite these headwinds, the big-box market seems poised for continued growth: the North American economies remain strong, e-commerce continues to grow at a faster rate than traditional in-store retail and logistics drivers from the air, ground, sea and rail continue to post gains. These drivers should outweigh the headwinds and create strong demand and rental rate growth in big-box markets for the foreseeable future.

Big-Box Key Statistics

Historical Data

Big-Box Buildings in North America
# of Buildings Existing Inventory Vacant Inventory Vacancy Rate Leasing Activity Net Absorption Taking NNN Rent Cap Rate Under Construction Construction Completions
2009
3,214 1,394,450,977 196,219,664 14.1% 72,385,116 12,190,972 $3.50 8.3% 9,513,185 32,452,843
2010
3,355 1,451,512,364 173,011,478 11.9% 83,341,534 40,558,623 $3.40 8.0% 8,708,426 8,182,809
2011
3,382 1,467,529,434 130,264,883 8.9% 103,282,791 60,353,822 $3.43 7.7% 12,883,940 13,235,474
2012
3,441 1,498,169,235 118,498,206 7.9% 104,754,173 29,868,296 $3.64 7.0% 33,513,717 19,087,596
2013
3,548 1,559,603,748 115,205,720 7.4% 123,341,737 56,543,979 $3.69 6.8% 63,644,843 45,382,720
2014
3,666 1,636,966,740 115,970,468 7.1% 128,351,605 75,146,665 $3.78 6.6% 87,642,969 80,497,032
2015
3,863 1,742,770,629 121,733,400 7.0% 142,095,804 94,969,838 $3.98 6.4% 97,011,211 103,756,525
2016
4,112 1,860,776,353 128,423,128 6.9% 172,729,091 113,625,190 $4.25 5.9% 119,960,089 121,051,744
2017
4,334 1,999,600,298 137,125,756 6.9% 145,773,955 116,291,175 $4.36 5.8% 121,000,654 127,294,171

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Atlanta, GA

The Atlanta big-box market continues to thrive finishing 2017 with all-time records in overall net absorption, first-year taking rents and product under construction. Tenants continue to move into the market in droves because of the plethora of logistics advantages and, most importantly, a large and growing labor base.

At year-end, nearly 13 million square feet of big-box space was absorbed, nearly 10% higher than the previous year. Net absorption increased despite a drop in new leasing activity, which finished 2017 at just over 16 million square feet, the third most for a market in North America. The large amount of activity over the past eight quarters has kept development high, with nearly 15 million square feet completed. 

New development increased vacancy rates slightly to 11.6%, 0.2 percentage points higher than 2016. Despite a vacancy rate in double digits, developers are bullish on the Atlanta market, with a record 19.5 million square feet under construction. Investor demand remains strong with many large-scale transactions closing, including purchases by TA Realty, Clarion Partners and John Hancock Realty. Due to this demand, cap rates for big-box product dropped to 6% for the year.

Atlanta has the necessary factors for continued robust fundamentals. Its central location in the southeast U.S. provides access to 28 million people within 250 miles. Along with growing inland logistics capabilities, these factors will be a boon for the market. In the coming quarters, it is expected that net absorption will remain positive, vacancy rates will decline, cap rates will remain low and taking rents will continue to increase.

Big-Box Key Statistics

“The Atlanta big-box market continues to thrive because of its central location making the region the gateway to the south. Most major companies are locating or expanding in Atlanta, due to its growing population (especially in the millennial segment), and relatively low cost of living. Atlanta is home to the world’s busiest passenger airport and near one of the fastest growing seaports (Savannah) in the country. All of this added up leads to a bright future for big-box product in the region.”

-Darren Ross, SIOR, Senior Vice President | Atlanta

Major Logistics Driver

One of Atlanta’s many logistics advantages is its close proximity to the Port of Savannah, the fourth-largest seaport in North America and the second-largest on the East Coast. The Port of Savannah is home to the Garden City Terminal—the largest single terminal in the U.S., which operates two Class I rail yards. Some of the largest industrial markets in the U.S., including Atlanta, are within just a four-hour drive from the Port of Savannah.

In 2018, the region will also be home to the Appalachian Regional Port. The new inland port will be located nearby Chatsworth, GA and offer direct rail service from the Port of Savannah’s Garden City Terminal, significantly lowering truck traffic through the Atlanta area.

Big-Box Building Inventory

Notable Transactions

Big Box Leases - 2017
Tenant Lease Size (SF) Building Address City Lease Type
Georgia-Pacific
1,121,120 490 Westridge Pkwy. McDonough, GA Renewal & Expansion
Owens Corning
1,044,288 8095 McLarin Rd. Palmetto, GA Renewal
Asos.com
1,039,570 Majestic Airport Center IV - Bldg. A Atlanta, GA New
Lindt
1,004,400 Lambert Farms-King Mill Rd. McDonough, GA New
Big Box Sales - 2017
Buyer Building Size (SF) Building Address City Sale Type Sale Price (PSF)
Clarion Partners
1,044,288 8095 McLarin Rd. Palmetto, GA Investor $52.43
John Hancock Real Estate
1,000,993 700 Price Dr. Locust Grove, GA Investor $47.95
Lexington Realty Trust
900,640 490 Westridge Pkwy. McDonough, GA Investor $74.06
TA Realty
873,800 Shugart Farms - Bldg. B Fairburn, GA Investor $70.95

Historical Data

Big-Box Buildings in Atlanta
# of Buildings Existing Inventory Vacant Inventory Vacancy Rate Leasing Activity Net Absorption Taking NNN Rent Cap Rate Under Construction Construction Completions
2009
285 123,684,987 22,519,101 18.2% 10,103,626 857,406 $2.85 8.4% 4,036,767 1,216,162
2010
288 126,571,754 23,631,068 18.7% 9,190,316 1,774,800 $2.76 8.5% 2,041,229 2,886,767
2011
291 128,612,983 19,278,938 15.0% 10,608,833 6,393,359 $2.79 7.8% 1,115,640 2,041,229
2012
294 130,014,223 19,217,571 14.8% 16,153,972 1,462,607 $2.78 7.6% 3,042,439 1,401,240
2013
299 133,056,662 18,477,181 13.9% 18,334,871 3,782,829 $2.89 6.9% 2,195,278 3,042,439
2014
306 137,106,230 11,621,413 8.5% 22,346,131 10,905,336 $3.01 6.8% 9,890,390 4,049,568
2015
321 147,132,255 12,616,626 8.6% 13,397,571 9,030,812 $3.25 5.9% 13,755,015 10,026,025
2016
354 165,029,314 18,787,696 11.4% 22,560,937 11,725,989 $3.41 6.1% 15,398,266 17,897,059
2017
380 179,874,709 20,791,032 11.6% 16,264,500 12,842,059 $3.49 6.0% 19,552,031 14,845,395

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Chicago, IL

With its multitude of logistics advantages, and over 37 million people residing within 250 miles, Chicago remains one of the most in-demand big-box markets in North America. Because of this demand, 22 speculative construction projects totaling 10.7 million square feet were completed in 2017, a new record. This new product raised the overall vacancy rate to 9.6%, 2.4 percentage points higher than 2016. Despite higher vacancy rates, net absorption finished 2017 at 12.5 million square feet, the third consecutive year big-box absorption has surpassed 10 million square feet.
 
New lease activity was robust once again in 2017, with just over 11 million square feet of new transactions signed, the seventh consecutive year leasing activity surpassed 10 million square feet. Continued strong activity raised first-year taking rents to $4.53 per square foot per year NNN, the second consecutive year rents increased in the region. Elevated rents kept investor interest strong and sale prices high, keeping cap rates at a decade-low 5%, the second consecutive year cap rates finished at this mark.
 
Rising vacancies in Chicago resulted in a significant decrease in groundbreakings during 2017, dropping under construction product to only 7 million square feet at year-end, the lowest amount since 2013. With demand expected to keep its current pace, and fewer speculative development deliveries expected over the coming year, vacancy rates will decline and rents will remain elevated in the Chicago big-box market in 2018.

Big-Box Key Statistics

“The Chicago metropolitan area’s industrial market remains very healthy even though 2017’s activity was weaker than 2016 and 2015. Construction completions set a record, but vacancy was up, net absorption lower and no deals in new buildings over 600,000 square feet were completed. Four 1-million-square-foot spec buildings were delivered and remain vacant in Chicago near Joliet near the intersection of I-55 and I-80. Getting these buildings leased is a priority for the market and the developers. Outside of these big bombers, the market was strong with real rent growth and strong absorption.”

-Jack Rosenberg, SIOR, National Director | Logistics & Transportation

Major Logistics Driver

Chicago is the major rail center of the United States. Six of the seven major rail lines have hubs in the Greater Chicago area, a major reason the region is one of the largest big-box industrial markets in the country. The region claims 70% of the nation’s rail and intermodal activity. 

Rail is not the only logistics advantage the region provides. Three of the nation’s busiest transcontinental expressways cross through the region. The Chicago Air Gateway comprises O’Hare International Airport and the Midway Airport. Consistently recognized as one of the busiest airports in the world, Chicago O'Hare International Airport is not only a national aviation hub, it is also a global air cargo gateway, providing billions of dollars in trade to Chicago's economy. In 2016 Chicago O’Hare finished as the fourth-busiest cargo airport in the U.S. and its cargo capabilities will continue to be an advantage for occupiers in the region.

Big-Box Building Inventory

Notable Transactions

Big Box Leases - 2017
Tenant Lease Size (SF) Building Address City Lease Type
Electrolux
965,183 801 Midpoint Rd. Minooka, IL Renewal
Kenco Logistic Services, LLC
599,317 5800 W Industrial Dr. Monee, IL New lease
CTDI, Inc.
531,227 3900 Brandon Rd. Joliet, IL New lease
The Central American Group
500,160 825 Bluff Rd. Romeoville, IL New lease
Big Box Sales - 2017
Buyer Building Size (SF) Building Address City Sale Type Sale Price (PSF)
Glen Una Management Company Inc
1,907,193 Calumet Business Center Chicago, IL Investment sale $27.26
Bentall Kennedy (US) LP
1,027,606 1750 Bridge Dr. & 3900 Burwood Dr. Waukegan, IL Investment sale $79.02
CBRE Global Investors Ltd
1,000,560 23534 S Central Ave. Monee, IL Investment sale $52.87
Supervalu Inc.
994,000 2600 W Haven Rd. Joliet, IL User sale $65.31

Historical Data

Big-Box Buildings in Chicago
# of Buildings Existing Inventory Vacant Inventory Vacancy Rate Leasing Activity Net Absorption Taking NNN Rent Cap Rate Under Construction Construction Completions
2009
402 174,896,238 28,333,191 16.2% 8,770,405 2,840,661 $3.69 6.2% - 5,309,160
2010
406 174,896,238 24,310,577 13.9% 9,876,554 4,022,613 $3.47 6.5% 1,350,000 -
2011
407 176,246,238 17,977,116 10.2% 11,496,182 7,683,461 $3.61 7.0% 627,100 1,350,000
2012
410 177,111,981 15,762,966 8.9% 13,372,315 3,079,893 $3.98 7.0% 4,026,851 865,743
2013
418 183,433,259 15,591,827 8.5% 15,967,560 6,492,417 $4.10 6.5% 4,307,145 6,321,278
2014
437 191,107,885 13,759,768 7.2% 12,902,662 9,506,685 $4.43 5.8% 8,801,182 7,674,626
2015
477 207,187,079 14,710,283 7.1% 16,248,184 15,128,679 $4.46 5.3% 11,037,540 16,079,194
2016
518 224,730,700 16,180,610 7.2% 14,390,831 16,073,293 $4.49 5.0% 19,208,730 17,543,621
2017
554 244,687,531 23,561,292 9.6% 11,266,980 12,576,149 $4.53 5.0% 7,054,698 19,956,831

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Cincinnati, OH

Cincinnati is becoming an e-commerce destination due to its large workforce, excellent transportation advantages and a population of more than 35 million people within 250 miles. The Cincinnati market is particularly well-suited to meet the growing demand for faster delivery and the accompanying demand for warehousing and transportation. 

Demand from e-commerce companies has dropped industrial big-box vacancies to all-time lows and increased new development. At year-end, nearly 8 million square feet of big-box product had been leased, more than double the 2016 mark and by far the most on record. The significant amount of leasing activity increased net absorption to 3 million square feet, a nearly 10% increase compared with the previous year. 

The exceptional activity is pushing up taking rents, which finished 2017 at a decade-high $3.88 per square foot per year NNN. Demand has also driven up investor activity with cap rates dropping to a decade-low 6.1% at year-end. Many investors continue to expand in the region with Clarion Partners and Granite REIT both adding over 1 million square feet to its Cincinnati portfolio in 2017.

All signs point to continued growth in the Cincinnati big-box market in the coming quarters. The market’s logistics advantages and pro-business policies will drive an increasing number of occupiers to move into or expand within the market. This will keep activity, development and rent growth strong in the region for the foreseeable future. 

Big-Box Key Statistics

“The Greater Cincinnati region enjoys a diverse industrial base, powered by advanced manufacturing, automotive and e-commerce as the primary drivers. E-commerce has rapidly emerged as the number one driver. The increased interest in our thriving economy has brought numerous new developers to our market providing the speculative product that has attracted many new companies. 

Nearly every market can attribute some level of growth in the industrial sector to Amazon, but Cincinnati is the only market that can say it landed the Amazon Prime Air hub. This $1.5 billion investment on over 900 acres at the Greater Cincinnati/Northern Kentucky International Airport has produced increased activity. Already the fastest-growing cargo hub in North America, and ranked eighth for cargo operations, the airport will see accelerated growth. Being able to reach 65% of the U.S. population within a day’s drive positions Cincinnati as a key location for logistics operations.”

-John B Gartner, SIOR, Brokerage Senior Vice President & Principal | Cincinnati

Major Logistics Driver

The Cincinnati/Northern Kentucky International Airport it is one of the largest air cargo ports in the country, finishing eighth in total cargo in 2016. The market has the advantage of also being near the Louisville International Airport, ranked the third-largest cargo airport in the U.S. in 2016, the airport is home to UPS international air-hub.

While Cincinnati was not chosen as the location for Amazon’s HQ2, it did recently win another important competition as its airport was chosen to house the new Amazon Prime Air hub. The air hub will be a major boon to an already strong e-commerce market. When fully functional, the hub will employ 2,000 full-time employees as Amazon looks to expand its Prime Air capabilities.

Big-Box Building Inventory

Notable Transactions

Big Box Leases - 2017
Tenant Lease Size (SF) Building Address City Lease Type
Amazon
1,300,000 Park North at Monroe Monroe, OH New Lease
Hayneedle.com
994,013 600 Gateway Blvd. Monroe, OH New Lease
Amazon
646,468 2305 Litton Ln. Hebron, KY New Lease
UPS
442,304 55 Transport Dr. Walton, KY New Lease
Big Box Sales - 2017
Buyer Building Size (SF) Building Address City Sale Type Sale Price (PSF)
Clarion Partners
1,646,914 Port Union Commerce Center I-IV West Chester, OH Investment $61.99
Granite REIT
1,300,827 535 & 601 Gateway Blvd. Monroe, OH Investment $61.50
Ivanhoe Cambridge Inc
845,061 Evergreen Industrial Properties Portfolio Multiple Submarkets Investment $37.12
The Kroger Co.
674,500 251 Mt Zion Rd. Independence, KY Owner User $50.13

Historical Data

Big-Box Buildings in Cincinnati
# of Buildings Existing Inventory Vacant Inventory Vacancy Rate Leasing Activity Net Absorption Taking NNN Rent Cap Rate Under Construction Construction Completions
2009
125 48,106,385 6,687,322 13.9% - -1,750,895 $2.77 10.4% - 870,135
2010
125 48,106,385 5,641,802 11.7% - 1,045,520 $2.93 9.0% 366,096 -
2011
126 48,909,185 6,368,636 13.0% 3,013,872 -726,834 $2.88 8.1% 930,588 802,800
2012
128 49,111,185 5,509,099 11.2% 2,279,043 1,061,537 $2.77 8.0% 1,227,046 1,072,046
2013
131 50,169,056 4,143,516 8.3% 5,358,153 2,423,454 $3.05 7.2% 1,789,500 1,150,000
2014
133 51,394,043 2,662,329 5.2% 3,007,563 3,144,497 $2.81 7.2% 2,156,220 1,808,164
2015
137 53,623,657 3,179,593 5.9% 1,956,168 1,809,123 $3.36 6.9% 2,110,587 2,931,375
2016
143 57,289,504 4,191,432 7.3% 3,444,246 2,654,038 $3.67 7.0% 2,214,973 3,665,877
2017
148 59,363,184 3,335,511 5.6% 7,969,869 2,910,501 $3.88 6.1% 3,663,328 2,073,680

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Columbus, OH

Columbus was one of the fastest-growing big-box markets in 2017 because of its plethora of logistics advantages and its location near a large, young population. Occupiers moved into and expanded within the markets in droves with 5 million square feet of new leasing activity signed in 2017, more than double 2016’s market and the most new leasing for the region on record.

A few large move-outs in early 2017 hindered net absorption growth, which still finished positive for the year at 2.6 million square feet, the eighth consecutive year net absorption was positive for big-box product in Columbus. Continued positive absorption raised first-year taking rents to a post-recession high of $3.31 per square foot per year NNN, 3% higher than the previous year. Columbus is ripe for increased investor demand because of higher taking rents and a cap rate of 7.6%, much higher than nearby core markets.

Developers are bullish about the Columbus industrial market, with over 3 million square feet under construction—the most in more than a decade. Factors driving development include a booming inland port and a growing population base of nearly 36 million people within 250 miles of Columbus. In the coming quarters, look for leasing activity to stay strong, pushing net absorption and taking rents higher for the foreseeable future. 

Big-Box Key Statistics

“The Columbus market anticipates continued growth as a primary distribution hub. The crossroads of I-70 and I-71, in conjunction with the availability of large tracts of developable land, make the region attractive for logistics providers and retailers requiring access to half of the U.S. population located within an eight-hour drive of Columbus. The main demand generator has been the e-commerce sector, along with 3PL providers, in the east and southeast submarkets. Additionally, the Rickenbacker Inland Port, located to the southeast, serves as a hub for receiving freight via both air and rail, making Columbus ideally positioned to take advantage of future increases in shipping to east coast ports.”

-Michael Linder, SIOR, Executive Vice President | Principal | Columbus

Major Logistics Driver

The Rickenbacker Inland Port serves as a hub for importing and exporting freight via air and rail, positioning Columbus to take advantage of future increases in shipping to East Coast ports driven by the expansion of the Panama Canal. The majority of rail freight traveling to Columbus is international and reaches the Ohio Valley via the East Coast and West Coast ocean ports.

The port is serviced by Norfolk Southern and CSX. The Norfolk Southern Rickenbacker Intermodal Terminal, which covers 175 acres and can handle more than 400,000 containers annually, is located in the heart of the facility. The land development within the port has the capacity to grow to 70 million square feet of industrial space.

Big-Box Building Inventory

Notable Transactions

Big Box Leases - 2017
Tenant Lease Size (SF) Building Address City Lease Type
Continental Tire, LLC
417,125 2190 Creekside Pkwy. Lockbourne, OH Expansion
Geodis
369,271 2120 Creekside Pkwy. Lockbourne, OH New Lease
AmerisouceBergen
350,000 6450 Lasalle Dr. Lockbourne, OH New Lease
Veritiv
322,000 3265 Southpark Pl. Grove City, OH New Lease
Big Box Sales - 2017
Buyer Building Size (SF) Building Address City Sale Type Sale Price (PSF)
Prologis
1,014,592 5330 Crosswinds Dr. Columbus, OH Investment $23.41
Sealy Creekside I
652,195 2450 Creekside Pkwy. Lockbourne, OH Investment $61.02
Exel Logistics Co
652,195 2450 Creekside Pkwy. Lockbourne, OH Investment $53.00
Exeter
567,000 3219 Rohr Rd. Groveport, OH Investment $51.00

Historical Data

Big-Box Buildings in Columbus
# of Buildings Existing Inventory Vacant Inventory Vacancy Rate Leasing Activity Net Absorption Taking NNN Rent Cap Rate Under Construction Construction Completions
2009
- - - - 1,499,998 - - - - -
2010
121 47,949,704 6,079,920 12.7% 1,139,456 888,444 $2.74 7.8% - -
2011
121 47,949,704 5,688,727 11.9% 3,606,575 274,167 $2.74 7.9% 543,000 654,966
2012
121 48,604,670 4,034,756 8.3% 1,764,452 1,785,907 $3.06 7.6% 1,233,303 -
2013
121 48,178,552 2,239,546 4.7% 3,746,103 2,667,572 $3.03 7.4% 1,820,000 -
2014
102 51,400,040 2,003,869 3.9% 3,265,739 1,038,129 $3.23 7.1% 2,158,755 717,396
2015
110 55,200,883 4,574,373 8.3% 2,489,383 940,511 $3.26 6.9% 960,490 1,273,250
2016
113 56,728,373 3,966,984 7.0% 2,484,256 3,564,790 $3.22 7.0% 264,000 567,000
2017
130 72,949,768 5,646,575 7.7% 5,022,382 2,599,684 $3.31 7.6% 3,265,931 2,537,094

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Dallas-Fort Worth, TX

Dallas-Fort Worth’s location, abundance of land and strong labor force make it one of the fastest-growing big-box markets in the country. At year-end, leasing activity of big-box product was more than 18 million square feet, second only to the Inland Empire within North America. Due to substantial occupier demand, development remains robust and raised the overall vacancy rate to despite a vacancy rate of 9.9%, 1.0 percentage point higher than 2016.

Continued strong leasing activity, and nearly 18 million square feet of net absorption in 2017 put upward pressure on taking rental rates. This was the first-year taking rents for big-box product finished the year at $3.79 per square foot per year NNN, 2% higher than the previous year, and the highest rate in over a decade. Cap rates in the region are higher than the North American average, finishing 2017 at 6.8% as the Dallas-Fort Worth market continued to offer investors the potential for higher yields compared to other core markets in the U.S.

New construction continues to be completed at a rapid pace with over 22 million square feet of construction completions, the most on record and the most for a market in North America in 2017.  There is no end in sight to the massive amount of big-box development in Dallas-Fort Worth as over 16 million square feet was under construction at year-end; most of the product being developed are in buildings 750,000 square feet and above, the size range most in need of development with a vacancy rate of only 5.8% at year-end. 

There are plenty of reasons for optimism for the Dallas-Fort Worth big-box market in 2018. The population is growing, with more than 26 million people within 250 miles of the core. Corporations continue to move their headquarters into the region at a swift pace, attracting new consumers. With Dallas’ economic prowess and rising population, big-box activity will likely remain strong and absorb much of the new development in the region in the coming quarters. 

Big-Box Key Statistics

“Dallas-Fort Worth Industrial absolutely crushed it in 2017 with strong leasing activity and absorption. The market has been absorbing a large amount of space every year since Amazon signed their first 1 million-square-foot lease in Dallas in 2013. By the end of 2017, Amazon claimed 10 million square feet of inventory thanks to Jeff Bezos taking down another 2.5 million square feet this year alone.  

Logistic companies are shifting their focus to deal with increased consumer demand, a tightening labor market and capacity constraints due to massive pressure on the supply chain caused by the e-commerce boom. That’s why Dallas-Fort Worth is killing it—its strategic location, robust labor pool and business-friendly government are inviting to retailers, e-tailers and shippers needing to reduce transportation costs, hire skilled labor and receive government incentives.”

-Ward Richmond, SIOR, Senior Vice President | Dallas

Major Logistics Driver

Dallas-Fort Worth’s central U.S. location enables the market to act as an advantageous distribution hub, with quick access to rail, air and over-the-ground truck transportation. The region is a global inland port with two locations capable of large-scale cargo operations: Alliance Global Logistics Hub and Southern Dallas County Inland Port.

Home to major rail logistics operations for the two primary western U.S. railroads, BNSF Railway Co. and Union Pacific Corp., Dallas-Fort Worth is able to tap into major east-west arteries and provide important links to Mexican markets. By truck, distributors can efficiently move products throughout the central United States, reaching 93% of the population within 48 hours.

Big-Box Building Inventory

Notable Transactions

Big Box Leases - 2017
Tenant Lease Size (SF) Building Address City Lease Type
Kohler Company
1,300,000 9500 S Polk St. Dallas, TX New
Wayfair
874,000 2820 N Interstate 34 Lancaster, TX New
Haier
702,000 2401 N Belt Line Rd. Grand Prairie, TX New
Big Box Sales - 2017
Buyer Building Size (SF) Building Address City Sale Type Sale Price (PSF)
Global Logistics Properties
1,053,000 2701 W Bethel Rd. Coppell, TX Investor $64.00
Pure Industrial REIT
758,922 201 S Interstate 45 Dallas, TX Investor $55.00
Transpacific Development Company
712,843 3000 Cantrall Sansom Rd. Fort Worth, TX Investor $50.64
Monmouth Real Estate Investment Corp
351,874 5005 Samuell Blvd. Mesquite, TX Investor $143.00

Historical Data

Big-Box Buildings in Dallas-Fort Worth
# of Buildings Existing Inventory Vacant Inventory Vacancy Rate Leasing Activity Net Absorption Taking NNN Rent Cap Rate Under Construction Construction Completions
2009
342 144,698,665 28,999,146 20.0% 12,357,250 2,826,245 $3.28 7.75 400,123 9,084,950
2010
343 145,098,788 26,733,063 18.4% 11,295,086 2,666,206 $3.21 8 1,020,000 400,123
2011
345 146,423,788 20,076,380 13.7% 18,796,352 7,981,683 $3.18 8 951,480 1,325,000
2012
346 147,375,268 15,199,568 10.3% 17,117,770 5,828,292 $3.22 7.4 3,265,722 951,480
2013
358 153,855,489 12,279,273 8.0% 24,358,763 9,400,516 $3.26 6.3 12,206,745 6,480,221
2014
382 168,085,032 18,551,093 11.0% 22,276,941 7,957,723 $3.51 6.8 12,860,657 14,229,543
2015
414 182,896,061 18,997,271 10.4% 27,778,017 14,364,851 $3.60 7 15,421,567 14,811,029
2016
452 198,935,688 17,675,708 8.9% 26,173,665 17,361,190 $3.72 6 20,063,032 16,039,627
2017
495 221,086,923 21,930,002 9.9% 18,256,689 17,896,941 $3.79 6.8 16,041,827 22,151,235

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Eastern PA-Southern NJ

At approximately 243 million square feet, the Eastern Pennsylvania-Southern New Jersey market is the third-largest big-box market in North America. With more than 58 million people within 250 miles of its core and a plethora of logistics advantages, the market continues to post robust fundamentals. This is evidenced by the more than 18 million square feet of big-box leasing activity in 2017—nearly triple the 2016 total and an all-time record for the market. 

This record amount of leasing activity was helped by four new leases of more than 1 million square feet signed in 2017. Strong leasing and over 12 million square feet of net absorption lowered the overall vacancy rate to 4.6% at year-end, 0.8 percentage points lower than the previous year. Despite the record amount of activity, new construction dropped significantly to just over 5 million square feet; this trend looks to reverse in 2018 with over 11 million square feet under construction at year end.

Sales activity also continues to be strong for both occupiers and investors. Uline signed the largest sale of 2017 in a 1.6 million square feet facility in Breinigsville, PA. Investment activity was strong, evidenced by Dermody and Exeter purchasing large facilities in the market. Investor demand lowered cap rates in the region to a decade low 5.7% at year-end.

With economic conditions continuing to improve and the surrounding East Coast ports performing well, big-box fundamentals should remain healthy in the region for the foreseeable future. The addition of 11 million square feet of new inventory from development will be taken quickly and create another year of strong positive absorption. Taking rents will continue their upward trend and vacancies will stay low for the foreseeable future.

Big-Box Key Statistics

“Occupiers and developers are increasingly active in a wider range of locations in the market due to increased costs and a lengthening entitlement process near the traditional distribution hubs in Pennsylvania. The I-78 corridor in Lebanon and Berks counties between the well-established industrial neighborhoods in Harrisburg-Carlisle and Allentown-Bethlehem has become much more active as well as Carbon County, between the established Lehigh Valley and Northeast PA markets. In New Jersey and Delaware, infill locations have gained interest for potential bulk development. The proliferation of e-commerce operations is resulting in some labor shortages, particularly in the Lehigh Valley.”

-Michael Zerbe, Senior Managing Director | Conshohocken

Major Logistics Driver

The Eastern Pennsylvania-Southern New Jersey market is one of the most logistics-friendly markets in the country. The region is centrally located along the East Coast, giving it the capability to handle container volumes from three major seaports: the Port of New York and New Jersey, the Port of Baltimore and the Port of Philadelphia.

Two Class I railroads (CSX and Norfolk Southern) and 100 major interstate interchanges are located within the region. In addition, five airports with major cargo handling capabilities are within 90 minutes of the region. This includes the Lehigh Valley International Airport which was ranked the fastest-growing cargo airport in the U.S. in 2016.

Big-Box Building Inventory

Notable Transactions

Big Box Leases - 2017
Tenant Lease Size (SF) Building Address City Lease Type
Ace Hardware
1,100,001 139 Fredricksburg Rd. Fredricksburg, PA New
American Tire Distributors
1,100,000 141 Commercial Blvd. Blakeslee, PA Build-to-suit
Kohler
1,029,600 221 Allen Rd. Carlisle, PA New
Amazon
1,016,116 2551 Oldmans Creek Rd. Swedesboro, NJ Build-to-suit
Big Box Sales - 2017
Buyer Building Size (SF) Building Address City Sale Type Sale Price (PSF)
Uline
1,670,000 700, 800 Uline Way Breinigsville, PA User $149.13
Dermody Properties
1,296,494 Capital Logistics Center Middletown, PA Investor $58.70
Exeter Property Group
1,005,200 545 Oak Hill Rd. & 4501 Westport Dr. Mountain Top, PA & Mechanicsburg, PA Investor $63.21
WPT Industrial REIT
935,540 3000 AM Dr. Quakertown, PA Investment $79.42

Historical Data

Big-Box Buildings in Eastern Pennsylvania-Southern New Jersey
# of Buildings Existing Inventory Vacant Inventory Vacancy Rate Leasing Activity Net Absorption Taking NNN Rent Cap Rate Under Construction Construction Completions
2009
351 171,095,986 21,205,046 12.4% 7,230,575 354,457 $3.55 - 1,712,000 3,659,781
2010
353 172,140,986 17,047,991 9.9% 882,148 5,202,055 $3.63 - 1,664,946 1,045,000
2011
359 174,779,432 12,756,043 7.3% 1,021,551 6,930,394 $4.01 8.1% 3,823,473 2,638,446
2012
368 181,141,185 16,222,192 9.0% 502,269 2,895,604 $4.04 8.4% 5,019,909 6,361,753
2013
376 185,866,328 12,326,948 6.6% 2,423,248 8,620,387 $4.08 7.6% 7,291,433 4,725,143
2014
388 194,049,729 7,794,760 4.0% 4,096,500 12,715,589 $4.15 6.7% 12,480,079 8,183,401
2015
404 207,375,946 9,985,132 4.8% 4,113,609 11,135,845 $5.04 5.9% 14,384,906 13,326,217
2016
444 228,362,024 12,737,963 5.6% 6,638,719 18,233,247 $5.06 5.9% 9,423,205 20,986,078
2017
451 243,417,093 12,318,210 5.1% 18,509,430 15,474,822 $5.11 5.7% 16,791,571 15,055,069

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Houston, TX

Houston’s booming port and growing population are creating robust demand and increased development for big-box product in the region. More than 24 million people live within 250 miles of Houston and the city’s population is growing at a rate of 1,000 people per week. This robust demand significantly lowered big-box vacancies in 2017 to 4.9%, the lowest vacancy rate in more than 10 years. 

New leasing activity finished 2017 at 5.6 million square feet, the fourth consecutive year leasing surpassed 5 million square feet. Continued strong leasing in 2016 and 2017 increased overall net absorption to 8 million square feet, nearly double the 2016 total. These lower vacancies and strong activity have put upward pressure on first-year taking rents which finished 2017 at $5.18 per square foot per year NNN, the highest rent in a decade. 

Development activity remains strong with 5.6 million square feet completed in 2017, a 19% increase compared with the previous year. New development will remain robust in 2018 with another 4.2 million square feet under construction, nearly all of it in product 500,000 square feet to 750,000 square feet, a size range in much need of new development with only one full-building vacancy at the time of this report. 

Demand for big-box product in Houston will likely continue for the foreseeable future. The Port of Houston is booming with significant growth in both loaded inbound and outbound container volume. This, along with continued population growth, will increase leasing activity and taking rental rates in the coming quarters.

Big-Box Key Statistics

“The resiliency of Houston’s big-box industrial real estate market is truly astounding. Outsiders have always considered Houston to be an oil town with our economic success tied to the geopolitical intricacies of the international oil and gas markets. Three years into the oil and gas downturn, Houston has proven yet again that we have a truly diversified economic base. As a result, Houston’s big-box industrial real estate market has enjoyed a disproportionate benefit of that concerted effort to have a truly balanced economy.” 

-Walker Barnett, SIOR, Principal & Director | Houston

Major Logistics Driver

The Port of Houston remains a top demand driver for big-box space in the region. One of the top growth ports for loaded inbound container volumes, the Port of Houston draws on recent infrastructure improvements and two rail yards to funnel product to and from warehouses in the Houston region. Among other factors, the expansion of the Panama Canal should help keep demand strong for industrial product in the market for the foreseeable future.

Houston’s air cargo capabilities also continue to grow. The George Bush International Airport was the 16th-ranked cargo airport in the U.S. in 2016. Houston’s logistics advantages also include over 2,000 trains serving the region weekly. Kansas City Southern Railway Company provides intermodal service through Houston, connecting the American Midwest and Mexico.

Big-Box Building Inventory

Notable Transactions

Big Box Leases - 2017
Tenant Lease Size (SF) Building Address City Lease Type
Emser Tile
600,000 Pinto Business Park Houston, TX Build-to-suit
Kuraray America
465,851 9802 Fairmont Pkwy. Pasadena, TX New Lease
MRC Global
415,272 1801 S 16th St. La Porte, TX New Lease
Rooms To Go
373,860 2244 N Mason Rd. Houston, TX New Lease
Big Box Sales - 2017
Buyer Building Size (SF) Building Address City Sale Type Sale Price (PSF)
Hines
900,000 359 Old Underwood Rd. La Porte, TX Investment $71.59
Duke Realty Corp
772,500 4035 Underwood Rd. Pasadena, TX Investment $63.00
Hines
710,200 359 Pike Ct. La Porte, TX Investment $71.59
WPT Industrial REIT
410,660 Apex Distribution Center; 3-bldg portfolio Houston, TX Investment $98.00

Historical Data

Big-Box Buildings in Houston
# of Buildings Existing Inventory Vacant Inventory Vacancy Rate Leasing Activity Net Absorption Taking NNN Rent Cap Rate Under Construction Construction Completions
2009
102 37,710,562 6,982,681 18.5% 3,719,041 1,702,626 $4.26 7.5% 1,279,382 3,284,916
2010
104 38,989,944 5,564,445 14.3% 4,216,545 2,674,471 $4.57 8.1% 733,000 1,279,382
2011
107 39,722,944 4,845,382 12.2% 2,915,823 1,452,063 $4.56 8.3% 1,301,249 733,000
2012
110 40,549,193 3,990,022 9.8% 5,246,811 1,704,756 $4.35 6.0% 1,251,929 826,249
2013
118 43,343,292 4,303,232 9.9% 3,854,212 2,460,889 $4.42 6.5% 2,224,230 2,794,099
2014
126 46,144,554 4,791,724 10.4% 6,126,905 2,332,770 $4.46 5.7% 5,071,685 2,801,262
2015
145 52,798,216 5,468,015 10.4% 8,934,802 5,977,371 $4.67 6.6% 5,637,117 6,653,662
2016
160 57,470,788 5,566,037 9.7% 7,317,024 4,522,792 $4.86 5.8% 5,275,617 4,672,572
2017
172 63,020,884 3,083,321 4.9% 5,628,938 8,084,570 $5.18 6.1% 4,225,268 5,550,096

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Indianapolis, IN

Indianapolis’ location affords access to nearly 43 million people within 250 miles. The city also has the advantage of being in a pro-business state with numerous tax and financial incentives. Because of this, Indianapolis has become a burgeoning big-box market, with solid leasing, rental rate growth and new development. 

While not at the record levels of 2016, new big-box leasing activity in Indianapolis finished 2017 at 6.8 million square feet, the third-best year on record. Absorption also remains solid at 6.3 million square feet for the year, just slightly below last year’s 6.6 million square feet. Strong demand for industrial product skyrocketed new development in the region with an all-time record 7.4 million square feet of new development. 

This new development increased overall vacancy rates for big-box product to 7.7%, a 0.7 percentage point increase compared with the previous year. Despite rising vacancies, developers are bullish on the future of Indianapolis with an additional 4.2 million square feet of product under construction at year-end. Investors also remained bullish on the Indianapolis market with many institutional investors adding to their Indianapolis portfolio. This increased interest raised sales prices and lowered cap rates to 5.9% in 2017, another record for the market. 

The Indianapolis market is set up for continued growth in the coming quarters. Occupiers will choose Indianapolis at a greater pace compared with other Midwest markets because of its economic rates, strong labor, pro-business environment and plethora of logistics advantages. All of this means robust leasing, positive absorption, more development and more investor interest in the region for the foreseeable future. 

Big-Box Key Statistics

“Known as The Crossroads of America, the Indianapolis market has the distinct geographic and logistical advantage of being centrally located with excellent interstate access—over 75% of U.S. and Canadian populations can be reached in a day’s drive. Indiana, a right-to-work state, continues to earn top marks for its appealing tax structure, strong labor quality and business-friendly regulatory environment. 3PL and e-commerce operations continue to grow their presence in Indianapolis, accounting for more than half of all big-box leasing activity in 2017.”

-Brian Zurawski, SIOR, Executive Vice President & Co-Market Leader | Indianapolis

Major Logistics Driver

With access to five interstates—I-65, I-69, I-70, I-74 and I-465—and five major railroads, Indianapolis’ central location makes it an ideal logistics hub. This advantageous location is the reason FedEx chose to house its second-largest hub at the Indianapolis International Airport. Located less than 20 minutes from downtown Indianapolis, the Indianapolis International Airport is one of the largest cargo centers in the United States, finishing 2016 ranked seventh for total cargo handled. As a result of its cargo capabilities, the airport generates more than $4.5 billion for the area's economy each year on average.

Big-Box Building Inventory

Notable Transactions

Big Box Leases - 2017
Tenant Lease Size (SF) Building Address City Lease Type
XPO Logistics
1,091,435 135 S Mt Zion Rd. Lebanon, IN New
LSC Communications
799,344 716 Airtech Pkwy. Plainfield, IN Renewal
Guitar Center
773,150 950 Northfield Dr. Brownsbug, IN Renewal
Camping World
707,952 300 Purity Dr. Lebanon, IN Renewal
Big Box Sales - 2017
Buyer Building Size (SF) Building Address City Sale Type Sale Price (PSF)
DRA Advisors
925,800 800 S Perry Rd. Plainfield, IN Investment $44.54
Hillwood Investment Properties
924,530 2201 & 2301 Reeves Rd. Plainfield, IN Investment $42.00
United Parcel Service
892,540 10095 Bradford Rd. Plainfield, IN User $91.75
Lexington Realty Trust
741,880 1285 E SR 32 Lebanon, IN Investment $50.28

Historical Data

Big-Box Buildings in Indianapolis
# of Buildings Existing Inventory Vacant Inventory Vacancy Rate Leasing Activity Net Absorption Taking NNN Rent Cap Rate Under Construction Construction Completions
2009
119 60,554,138 7,539,880 12.5% 1613761 2,950,828 $2.54 9.6% - 3225889
2010
119 61,040,762 7,257,527 11.9% 3289528 923,431 $2.48 8.0% 1,049,980 486,624
2011
121 62,746,742 3,569,112 5.7% 4277694 5,395,797 $2.68 8.1% - 1,705,980
2012
123 63,724,446 2,686,876 4.2% 4398979 1,859,940 $2.95 8.0% 2,787,558 977,704
2013
129 67,636,134 4,510,426 6.7% 7679871 2,088,138 $2.86 7.1% 2,657,271 3,911,688
2014
138 72,665,819 5,801,138 8.0% 5041144 3,738,973 $3.38 6.8% 4,155,250 5,029,685
2015
147 78,274,199 10,165,392 13.0% 5478249 1,211,196 $3.10 6.2% 1,735,569 5,608,380
2016
154 81,190,652 5,647,176 7.0% 9149081 6,632,522 $3.33 6.2% 5,578,939 2,916,453
2017
168 88,571,961 6,820,772 7.7% 6777995 6,256,160 $3.31 5.9% 4,174,405 7,384,431

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Inland Empire, CA

At just over 320 million square feet, the Inland Empire big-box market is the largest in North America. With more than 28 million people within 250 miles of its core and a strong labor force, the Inland Empire is a leader for e-commerce distribution. This is evidenced by the more than 7 million square feet that Amazon.com occupies in the region.  

Robust demand kept the overall vacancy rate low at 5% at year-end, matching the decade-low vacancy rate in 2016. Despite low vacancies, activity remains strong with more than 27 million square feet of leasing activity in 2017, by far the most for a big-box market in North America. 

One of the Inland Empire’s top advantages is the amount of land available for development. With demand remaining near all-time highs, almost 15 million square feet of big-box space was completed in 2017, with another 18.6 million square feet under construction, an all-time record for the region. Insatiable demand continues to put upward pressure on lease rates which finished 2017 with an average first-year taking rent of $4.92 NNN, the highest on record.

All signs point to continued growth for the Inland Empire big-box market in 2018. Tenants in the market remain robust and should be enough to occupy the record amount of development in the region and keep vacancy rates at their current level. Investors will continue to try to enter and expand within the market driving up sales prices and keeping capitalization rates below the 5% range for the foreseeable future.

Big-Box Key Statistics

“The Inland Empire continues to be the healthiest and most dynamic industrial big-box market in the country. In addition to the historical market drivers like warehouse consolidations, proximity to key ports and a growing population, over the past several years the Inland Empire has benefited from the establishment of dozens of large-scale e-commerce and omnichannel facilities. Strong demand for big-box industrial product and a constrained supply should keep fundamentals healthy in the Inland Empire industrial market for the foreseeable future.” 

-Steve Bellitti, SIOR, Senior Executive Vice President | Ontario

Major Logistics Driver

The Inland Empire offers a plethora of logistics advantages including close proximity to the two largest seaports in North America: the Port of Los Angeles and the Port of Long Beach. The two ports combine to handle more than half of the loaded inbound container volume entering the United States and remain one of the top demand drivers of industrial space in the Inland Empire.

The region also boasts access to two interstate highways (I-10 and I-15), offering direct transportation across the east and north United States. In addition, the UPS Regional Air Hub at Ontario International Airport serves customers throughout the western United States, Hawaii and Canada. In 2016 the Ontario International Airport grew its cargo handling capabilities by 17%, and was ranked the #12 cargo airport in the United States. 

Big-Box Building Inventory

Notable Transactions

Big Box Leases - 2017
Tenant Lease Size (SF) Building Address City Lease Type
Walmart.com
1,022,670 6720 Kimball Ave. Chino, CA New Lease
Amazon.com
1,007,700 4950 Goodman Rd. Eastvale, CA New Lease
Amazon.com
1,000,000 20801 Krameria Ave. Riverside, CA New Lease
NDC
864,000 657 Nance St. Perris, CA New Lease
Big Box Sales - 2017
Buyer Building Size (SF) Building Address City Sale Type Sale Price (PSF)
Rexford
1,138,119 Multiple Ontario, CA Investment $124.00
Duke Realty
794,447 17791 Perris Blvd. Moreno Valley, CA Investment $141.00
Westcore
830,750 6207 Cajon Blvd. San Bernardino, CA Investment $73.00