CSCMP's Supply Chain Quarterly
December 12, 2018
Forward Thinking

U.S. industrial property demand to stay strong in '17, CBRE forecasts

A logistics and real estate firm forecasts that e-commerce will fuel another surge in demand.

The industrial property market will continue its multi-year surge in 2017, fueled by the rapid growth of e-commerce, CBRE Group Inc., the Los Angeles-based real estate and logistics services giant, forecast yesterday.

CBRE said the average U.S. industrial rent, which was on track to set a new all-time high at the end of 2016, will increase by about 5 percent in 2017. The company also expects net demand—the amount of new leases minus vacated space—to outpace a slow but steady increase in new construction, a trend that has been in place for seven consecutive years. This could drop vacancy rates in 2017 to levels nearing 5 percent, which could eclipse the multi-year lows set in 2016.

As expected, e-commerce remains the industrial market's primary growth engine. Citing forecasts from research firm Forrester, U.S. online sales will increase by 9.3 percent annually over the next five years to $523 billion a year. At that pace, e-commerce will generate roughly 40 million square feet of new demand for U.S. industrial space each year through 2020, based on the industry rule of thumb that each $1 billion of new online sales volume creates demand for another 1 million square feet of warehouse and distribution space, CBRE said.

"E-commerce users typically need two to three times as much space as a traditional industrial occupier due to e-commerce's use of more labor and automation," said Adam Mullen, CBRE's senior managing director of industrial and logistics for the Americas. "Thus, as e-commerce growth continues unabated, industrial market conditions will remain favorable throughout 2017."

Even when cyclical growth levels off, the structural changes wrought by e-commerce will drive the industrial market toward what CBRE called a "new baseline" of activity. "While the market eventually will lose momentum, it will then settle into a new normal rather than retreating to levels predating the spread of e-commerce," said David Egan, CBRE's head of industrial and logistics research, the Americas.

CBRE said it is mildly optimistic about the U.S. economic outlook, noting the uncertainty surrounding the specifics of the Trump administration's policies.

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