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U.S. Industrial Market Continues to Tighten in Latest Quarter

Posted On July 24, 2018

E-commerce cited as key factor in availability of warehouses and distribution centers reaching lowest point since 2000

DALLAS, July 24—The U.S. industrial real estate market continues to demonstrate robust growth, driven by the digital economy creating soaring demand for space in warehouses and distribution centers across the country, according to BBG, a national commercial real estate valuation, advisory and assessment firm.

Vacancies in the industrial sector, which includes warehouses, distribution centers and other facilities, dropped by 10 basis points (bps) to 7.2 percent in the second quarter of this year, the 32st consecutive quarter of declining supply and the lowest point since 2000, according to industry sources.

The markets posting the largest declines in industrial space were New Haven, Conn. (430 bps): Tucson (down 310 bps), Sacramento, (down 260 bps) and Jacksonville, (down 220 bps).

The explosive growth in online shopping has forced more e-commerce companies to acquire or lease warehouses and distribution facilities, further reducing an already tightening supply of space nationwide.  The amount by which demand outpaced supply was pegged at 22 million square feet for the 12 months ended in June, compared with 65 million square feet for the same period a year earlier.

Demand for these facilities is expected to remain high in the foreseeable future as a result of e-commerce’s fast-growth trajectory, and all indicators point to that direction over the next several years.

U.S. retail e-commerce sales rang up $409.2 billion in 2017, compared with $360.3 billion in the prior year, according to an e-commerce study. Online purchases are predicted to reach $638 billion by 2022.

The industrial market has also undergone a noticeable geographical shift.

More warehouses and distributions are being built closer to areas with larger population hubs. In the pre-digital economy era, these facilities were mostly located in less-densely populated areas, where costs for labor, land and real estate taxes were typically lower.

BBG CEO Chris Roach commented: “The tremendous growth in e-commerce has significantly transformed the industrial market to become one of the most active in the commercial real estate sector. We’re continuing to see increasing demand for our services from companies in need of these facilities, in order to receive and ship products to customers’ homes and physical retail locations. While more warehouse and distribution centers are being built or renovated to accommodate demand, we anticipate that the direction of the vacancy rate won’t change dramatically in the near future, as many companies are in the process of setting up their e-commerce operations.

About BBG

BBG is a leading independent national commercial real-estate valuation, advisory and assessment firm headquartered in Dallas with 26 offices in key US markets. BBG has achieved a reputation for personal attention, on-time delivery and deep expertise in multi-family, office, retail and industrial sectors. For more information about BBG, please visit www.bbgres.com.

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Marc Weinstein
Ascent Communications
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