Industrial Real Estate Success Hinges on Population Fundamentals
Changes in population growth and industrial market size are increasingly important for industrial real estate decision-making. In keeping with these current demographics, leasing and investment trends, JLL has identified the top 10 logistics markets around the U.S. based on market dynamics like inventory size, five-year rent growth, development pipeline and annual change in vacancy rate.
Closely tracking and analyzing population and market growth numbers is vital to understanding market dynamics, as these metrics are often key indicators for supply chain end-users involved in the site selection process. Developers and investors are increasingly looking for opportunities and properties close to population hubs as a strategy to meet growing customer expectations for same- and next-day deliveries. Typically, supply chain end-users are looking to build or grow their presence in these 10 tier-one U.S. regions in order to access large populations: Atlanta, Chicago, South Florida, Dallas, Seattle, Eastern and Central Pennsylvania, Houston, California’s Inland Empire, Los Angeles and New Jersey. The Texas cities of Dallas and Houston will provide strong opportunities for industrial developers over the next few years, according to new JLL Industrial Research.
Click to enlarge.
As you’ll see from the charts below, we’ve identified Dallas and Houston as “standouts” among this group. By 2022, populations in these cities are expected to increase by 8.0 percent and 11.1 percent, respectively. Equally important, there are existing warehouses and buildable land available for development… for now. Between 2015 and 2017 alone, the Sunbelt region, which includes Texas, boasted a growth in industrial market size of nearly 10.0 percent. We have included a snapshot of the key industrial real estate indicators in Dallas and Houston from Q2 2018, including absorption, construction, vacancy and average asking rent:
Getting Creative on the Coasts
While tier-one coastal markets like Los Angeles, New Jersey and South Florida are expected to grow in population size, these markets continue to suffer from near all-time-high rents, pricier land options and lack of readily available buildable land. Given the importance of these key port cities to the supply chain, industrial developers are getting creative when it comes to land usage, looking to radical new concepts such as multistory warehouses in order to accommodate demand.
What’s Next?
Once buildable land is exhausted, industrial developers will continue to get resourceful with space when it comes to their big-box (500,000 to 1 million square feet) warehouse footprints. Developers can also expect more demand for smaller to midsize industrial buildings (50,000 to 500,000 square feet) in urban areas to support retailers’ last mile delivery strategies. Matt Powers, leader of JLL’s Retail/e-commerce Distribution practice group, notes, “To achieve same- or next-day delivery, a good rule of thumb is that these smaller warehouses need to be no further than an hour from their customers.” Developers should keep an eye on population growth and industrial market activity in tier-two and tier-three cities, such as the Baltimore-Washington, D.C. Metro, Denver and Indianapolis. These markets are attracting millennials in increasing numbers who expect the same level of service as their tier-one counterparts when it comes to e-commerce delivery, thus creating demand for new industrial development.
To track U.S. industrial market activity and trends impacting the industry, click here to access JLL’s wealth of industrial research.
Aaron Ahlburn is a Managing Director and Director of Research for the industrial and retail property markets for JLL’s Americas region. His directives include the development, differentiation and implementation of research strategy, methodology, platform deliverables and broad sector analyses for the warehouse, distribution, manufacturing and retail property markets in the U.S., Mexico, Canada and Latin America.
