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Home » Small to midsize industrial real estate dominates leasing market

Small to midsize industrial real estate dominates leasing market

An increase in online shopping is driving demand for smaller logistics facilities, report shows.

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December 1, 2021
Supply Chain Quarterly Staff
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Accelerating e-commerce activity and a growing need for last-mile delivery services continue to shape the industrial real estate market, as more companies seek small to midsize warehousing and distribution facilities near urban markets, according to data from real estate investment firm JLL, released Tuesday.

Companies leased more than 137.9 million square feet of industrial space in the third quarter of 2021, a new high according to the firm’s Q3 Industrial Report. More than half of leasing came from users looking for space below the 100,000 square-foot mark, with the most popular size segment between 10,000 square feet and 49,000 square feet, JLL reported.

A surge in e-commerce combined with labor shortages and changing consumer expectations are adding pressure to supply chains and fueling demand for logistics services. As a result, distribution and third-party-logistics services (3PL) providers are seeking more space, accounting for more than 28% of leasing activity in the third quarter, the report found.

“With demand for industrial space showing no signs of slowing down, new inventory will be needed to bring supply and demand closer to equilibrium and negate a future shortage of industrial space,” Craig Meyer, president of JLL’s industrial Americas brokerage, said in a statement. “As e-commerce grows, now more than ever Logistics and Distribution and 3PL will be at the forefront, especially with the upcoming holiday season and impending impacts from the cargo ships’ backup logs observed at the close of the quarter.”

Rapid growth in urban logistics is also playing a big role. New York City offers a prime example: The Outer Boroughs have seen a 24% increase in light truck driver hiring since 2019, compared to a 15% increase nationwide, according to JLL analysis. The region has also seen rapid growth in the construction of industrial space. In 2019, 542,680 square feet of space was under construction in the Outer Borough’s development pipeline, a figure that had grown to more than 3.4 million square feet by the end of the third quarter this year.

“In a world of two-hour shipping, consumers have come to expect a specific window for their goods to arrive. The growth in online shopping and the need for fast delivery times is driving demand for urban industrial space unlike ever before,” Leslie Lanne, executive managing director for Urban Logistics at JLL, said in a statement. “E-commerce will keep driving the need for vertical space, and as a result we’re going to see this new urban logistics asset class spark progressively more developer and investor interest.”

Small-bay warehouse facilities in New York City and Northern New Jersey—specifically those under 100,000 square feet—have seen a steady increase in both square footage and leasing since 2019, according to JLL. At the end of the third quarter in 2019, the region accounted for 148 small-bay leases totaling more than 4.4 million square feet; today, the region accounts for 213 leases totaling more than 6 million square feet.
Logistics Third-Party Logistics Warehousing
KEYWORDS JLL
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