A few weeks ago, I attended the RealShare Industrial conference in Dallas.
Commercial real estate professionals got to find out during the various panel discussions why the industrial sector is doing so well as of late.
One of the biggest drivers in the space right now is warehouses for e-commerce firms and brick-and-mortar retailers that also have a strong online presence. Since the convention was set in Dallas, there was a lot of talk about activity throughout the state, which has so much CRE diversity, it mirrors the country as a whole. In the case of e-commerce, Amazon completed an 855,000 square feet warehouse in Austin, which is known as the state’s tech hub. With the increased traffic of online shopping, more deals like this are bound to take place across the country. For every $1 billion in e-commerce sales, there is a demand for an additional one million square feet of industrial space on the market, according to a PwC analyst. And now these developments are being built closer to large cities, in order to do same-day delivery more efficiently.
On the overall development front, there is currently a pipeline of 180.5 million square feet in the works across the country. A recent JLL report says that spec building makes up 73 percent of all new industrial construction taking place. The firm reported that urban areas are seeing industrial redevelopments to fit with the higher ceilings needed to attract e-commerce tenant. Overall vacancy is also at a 26-year low hitting 5.8 percent during the third quarter. The markets with the biggest leap in construction right now are Atlanta and Philadelphia.
When speaking about the country’s port situation, the East Coast is running behind the West Coast, and other parts of the world, when it comes to updating their facilities to accommodate larger tanker ships. It was reported that cargo shipments were down 15 percent as of late, while container shipments dropped 25 percent. Meanwhile, on the West Coast, the Port of Los Angeles, is holding up well, according to Transwestern. During the third quarter, container volume in Los Angeles and the Port of Long Beach slid up just under one percent, and overall, the Los Angeles area industrial market is enjoying a 1.2-percent vacancy rate.
E-commerce is obviously not slowing down soon. The recent Cyber Monday saw sales of $3.5 billion, the most ever, and a 12.1-percent increase from the prior year. This will only increase in the coming years, increasing the demand or additional warehouses. As far as the port situation goes, we will have to wait and see what the international trade situation will be like as a result the coming presidential administration’s policies.