Booming logistics market drives demand for large warehouses and DCs

The North American industrial and logistics real estate market had its best year on record in 2020, and market analysts expect more of the same in 2021 as strong demand for warehouses and distribution centers (DCs) continues, according to a report from real estate firm CBRE.

CBRE’s 2020 North America Industrial Big Box Review & Outlook examines real estate activity at warehouses and DCs of 200,000 square feet or more. The research determined that all types of occupiers—including retail, e-commerce, and third-party logistics services (3PL) providers—increased their presence in big-box facilities last year to serve growing populations, get closer to expanding logistics hubs, and take advantage of government incentive programs, including regional growth initiatives and tax incentive plans. The report analyzes the 22 largest industrial real estate markets in North America, which include top growth markets such as Phoenix, Central Florida, and California’s Inland Empire, the large metropolitan area adjacent to Los Angeles county.

James Breeze, senior director and global head of industrial and logistics research for CBRE, emphasized the North American market’s “robust fundamentals” during an online news briefing about the report Monday. High demand for warehouses and DCs in 2020 led to strong absorption of space, higher negotiated rents, and lower direct vacancy rates for big-box facilities—all of which led to record-low industrial capitalization rates during the year.

North American transaction volume for large facilities increased from 280 million square feet in 2019 to 349.3 million square feet last year; direct vacancy rates fell from 5.25% in 2019 to 4.6% last year; and overall net absorption rose from 147.3 million square feet in 2019 to 189 million square feet last year.

Although a boon to property owners and investors, the situation presents challenges for tenants as space remains at a premium and rents are increasing across many markets.

John Morris, CBRE’s executive managing director and Americas industrial and logistics retail leader, pointed to three trends driving the accelerated activity: e-commerce growth, rising demand for online grocery shopping and new restaurant formats focused on home delivery, and home improvement investment, all of which were driven by the pandemic but are likely to stick around as consumers get comfortable with new buying behaviors.

Other trends driving growth include continued demand for cold storage space and rising rent growth in that market; multi-story development in urban markets, especially Manhattan; conversion of office to industrial space as tenants relax their geographic requirements in search of the right industrial space; and growing demand for 3PL services, especially for e-commerce fulfillment needs.

CBRE researchers said they see no slowing down in sight, predicting similar growth patterns for industrial real estate this year.