Industrial property market to continue multiyear roll in '17, JLL forecasts

The industrial property market will extend its multiyear bull run into 2017, fueled by historically low interest rates, solid consumer spending, and demand for e-commerce services, real estate and logistics services giant JLL said today.

The industrial real estate segment has achieved record-setting growth in almost every quarter since it emerged from the Great Recession in 2010. When 2016 is officially in the books, vacancy rates will have fallen to below 6 percent, according to multiple forecasts. That would be the lowest level in 16 years, and more than 2 percentage points below the 10-year historical average. There have been predictions that vacancy rates in 2016 will have neared 5 percent, which would be a 30-year low.

Craig Meyer, president of JLL's Logistics and Industrial Services Group, said more than 250 million square feet will have been leased in 2016, an all-time record. "Many companies continue to expand, while others adapt and perfect their supply chains to be closer to urban cores and their customers, driving record-low vacancy rates even further and increasing leasing rates in response," Meyer said.

With new construction still trailing demand, Meyer predicted a "creative and adaptive re-use of assets" which will include multistory construction in or near urban locations in order to be closer to end customers in densely populated areas.

JLL said several trends will drive growth next year, among them a revival in infrastructure development in the Rust Belt that will require the development of warehouses to store material; continued interest among institutional investors in U.S. industrial property; the continued overall surge in e-commerce activity; and the rise of so-called tertiary markets such as Charlotte, Tampa Bay, and Kansas City.

In addition, smaller urban core warehouses and fulfillment centers, reconverted assets, and multistory warehouses could become "last-mile" fulfillment and delivery solutions for many companies in 2017, JLL said.

The 2017 forecast is not much of a surprise, as virtually every real estate services firm and consultancy has forecast that the pace of growth would not level until at least 2018, as the market becomes more saturated with supply and the economy turns down again. However, e-commerce's growth, which appears to be in the early innings, could mitigate any negative impact of an impending down cycle. E-commerce accounts for only 9 to 12 percent of total U.S. retail sales.