Occupier Activity Remains Robust in 2018 Thanks to 3PL Activity

by | 17 January 2019

Occupier activity across the Unites States continues to be robust, particularly in bulk industrial space 100,000 square feet and larger. In 2018, 1,406 industrial (warehouse, manufacturing, flex) new lease and sale transactions signed in spaces 100,000 square feet and larger, totaling 374 million square feet—slightly lower than the 385 million square feet signed the 12 months prior. The average size of a bulk transaction was 266,000 square feet—much higher than the 242,000 square feet average the previous year. The increase in size range was a direct result of third-party logistics and packaging companies (3PLs) and automotive-related companies taking larger chunks of space compared with the same time last year.

While e-commerce occupiers continue to get the press, they only made up 11% of the transactions signed the past 12 months; this is in line with the percentage of total retail sales e-commerce accounts for. 3PLs were the top new occupiers of space in 2018 signing 115 million square feet of bulk industrial deals, 31% of the total transactions. 3PLs who offer logistics and warehousing services for retailers and wholesalers who choose to outsource, remain the top occupier of industrial space because of the sheer volume of companies who service every industry in the business. The top 3PL occupiers the past 12 months were UPS and XPO Logistics, who both signed transactions totaling more than five million square feet.

E-commerce occupiers continue to require buildings much larger than other occupier types, as the average e-commerce transaction the past year totaled 496,000 square feet, nearly double the overall average transaction size for a bulk industrial building. For the fourth consecutive year, Amazon.com was not only the top e-commerce occupier of industrial space but also the top overall occupier, with transactions totaling more than 19 million square feet. Walmart also continued to expand its e-commerce distribution capabilities, signing 2.4 million square feet of new deals. While that is good enough for 10th in the country, it is only 10% of the distribution space Amazon occupies. Walmart is not leasing the same amount of space as Amazon because it can use its vast inventory of big-box retail stores across the country as final-mile distribution centers.

The Midwest overtook the Southeast as the top region of choice for bulk industrial occupiers, with 27% of the bulk transactions signed in the region. Both industrial and manufacturing occupiers continue to move into the market in droves because of the region’s pro-business climate and significant logistics advantages. The Southeast region is still doing well as occupiers move into the region to support the growing population. At the time of this report, more than 70 million people lived in the Southeast region, and this is expected to grow by a nation-leading 7% over the next five years. The West region finished in third, thanks to continued strong demand in West Coast port markets including Los Angeles, the Bay Area and Seattle. The Inland Empire remains the top market in the country for bulk-leasing activity, while markets including Phoenix, Sacramento and Las Vegas are some of the fastest growing markets in the country. All of these markets contributed to nearly 90 million square feet of deals in the past 12 months.

 

Transaction volume for bulk industrial space will remain robust over the next 12 months because of occupiers increasing need for both regional and “final-mile” bulk distribution centers. While 3PLs and retail-related distribution volume will remain robust, look for strong growth in the food, beverage and pet supply industry, as many of these occupiers are looking to expand and modernize their distribution and manufacturing networks. Population growth will keep occupiers in all industries looking at space in the Southern and Western portions of the U.S. while improvements and expansions of inland and coastal logistics hubs as well as strong domestic manufacturing in the Northeast and Midwest will keep demand strong in these regions for the foreseeable future.

Company Type Description:

  1. Construction, Improvement, and Home Repair – Warehousing and distribution of materials used in residential and commercial construction, improvements, and repair.
  2. Data Centers/Tech/Engineering – The use of industrial space for data centers and non-pharmaceutical R&D purposes.
  3. E-Commerce – Warehousing and distribution of product that is primarily ordered online and shipped directly to the end consumer.
  4. Food, Beverage, and Pet Supply – Manufacturing, warehousing, and/or distribution of food and beverage related products. Could contain some e-commerce or manufacturing components.
  5. Furniture and Appliances – Warehousing and distribution of retail and/or wholesale furniture and appliance products. Could contain some e-commerce and or manufacturing components.
  6. General Retail and Wholesale – The warehousing and distribution or retail and/or wholesale products not listed in any of the other categories. Could contain some e-commerce or manufacturing components.
  7. Manufacturing – Industrial space used for manufacturing and/or storage of raw materials and equipment used in the manufacturing of non- automobile related products.
  8. Motor Vehicles, Tires, and Parts – The warehousing, manufacturing and/or distribution of motor vehicles, tires, and related parts and materials.
  9. Third-party Logistics and Packaging – Third-party logistics and packaging of a wide variety of products.

James Breeze is National Director of Industrial Research for Colliers International in the United States. Based in the Greater Los Angeles area, he prepares quarterly and specialized industrial research reports and interprets trends and data across the country.

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