Positive momentum is largely thanks to “the sheer dominance” of e-commerce giant Amazon.
The outlook for the industrial big box sector remains strong despite headwinds that include scarcity of suitable land, skyrocketing rents and ongoing supply chain woes.
“Supply chains will continue to be modernized as companies keep more inventory on hand, prompting the need for more logistics space. This bodes well for the future of industrial construction, industrial conversions and multi-story warehouses,” Colliers analysts note in a new report. “Despite the rare headwinds to the industrial sector, the big-box market remains poised for continued growth. The North American economies continue to recover from the pandemic-related challenges, which will benefit the big-box market for years to come.”
The US industrial market set records last year for occupancy gains, new supply and rent growth, and new development also hit new highs as nearly 185 million square feet of big box space was delivered in 2021, according to Colliers. Nearly 298 million square feet of new product was under construction at the end of the year as well. And demand remains high, fueled in large part by e-commerce, which accounted for just over 13% of non-automobile retail sales in 2021 and is expected to balloon to 23% by 2025.
Last year also saw occupancy gains of nearly 580 million square feet in the big box market, a new high. Colliers analysts say that positive momentum is largely thanks to “the sheer dominance” of e-commerce giant Amazon, which completed 179 deals for big box space across North America in 2021 alone. And while the company recently said it would moderate its industrial investments, “its impact remains to be seen,” Colliers experts note.
Occupancy gains notched greater than 30 million square feet in four markets: Southern New Jersey – Eastern Pennsylvania (44.5 million square feet), Chicago (33.5 million square feet), Dallas-Fort Worth (31.7 million square feet) and Atlanta (30.4 million square feet), according to Colliers. And while the Inland Empire, the largest big-box market in North America, logged just 18.9 million square feet in occupancy gains, experts say that’s largely owing to the limited space available in the landlocked, bustling market.
Southern New Jersey continues to be a favored destination for big box retailers thanks to a central location, ample developable land and a strong labor force. The region led North America in 2021 with just over 43 million square feet of new leasing activity and 44.5 million square feet of net absorption. On the flip side, Northern-Central New Jersey and Phoenix were the only two markets Colliers reviewed to post year-over-year occupancy losses.
Sales also boomed for the asset class in 2021: according to Real Capital Analytics, nearly every subtype and deal structure showed high double-digit sales growth rates, accounting for 21% of commercial property investment overall last year. Prices climbed nearly 29% year over year for the asset class overall in February, according to RCA data. That’s the fastest annual rate among the major property sectors.
Los Angeles, Chicago, the Inland Empire, Dallas, and Atlanta led the top markets for industrial big box investment activity last year, while cap rates fell in 2021 to 5.5%, down from 6.5% a year prior.
Source: “Outlook for Big Box Remains Strong Despite Headwinds“
