Developers Deliver Several Million-Square-Foot-Plus Big Boxes in Third Quarter
By Randyl Drummer
A string of quarterly declines in the U.S. warehouse and logistics vacancy rate stretching back to 2009 ended in the third quarter as a rising wave of construction added more space than was leased by tenants.
The U.S. logistics vacancy rate remained unchanged at 8.1% in the third quarter of 2015, the first quarter since the beginning of the economic recovery that vacancies have not compressed from the previous quarter.
Additions to logistics inventory nearly matched net absorption, with demand rising 3.4% year over year, the strongest growth among the major CRE property types.
Construction is finally outpacing absorption in many markets, including Dallas-Fort Worth, Phoenix, and Columbus, OH. The prolonged demand for distribution space has resulted in an ongoing spike in industrial rents, which logged year-over-year gains of 5.4% and 5.7% in the logistics and light industrial segments, respectively in the third quarter — easily surpassing strong rent growth in apartment, office, and retail properties.
The new supply was welcomed in a market that has seen both demand and new construction remain above their 2003-2007 averages in most markets over the last four quarters, prompting concerns about accommodating the burgeoning demand.
“We had been getting toward the point where we felt demand was beginning to slow because there was not enough new space available for tenants to move into,” said CoStar Real Estate Economist Donald Hall, who was joined by Rene Circ, CoStar Group director of research, industrial property. “That’s still to the case in some markets, but tenants are now getting the new supply they asked for, which is providing room for demand to grow.”
Rent growth remains an astounding five times above the historical industrial real estate average of 1%, with light-industrial rental rates up 5.7% year over year, while logistics properties are 5.4% above a year, both well above the rent gains of 4.3% in the office and apartment sectors.
A reundown of the largest industrial property deliveries of the third quarter cover a broad section of markets and include:
- The first 1.7 million-square-foot building at RidgePort Logistics Center in Chicago developed by Ridge Property Trust;
- A 1.5 million-square-foot Restoration Hardware distribution center at 13701 Rogers Road, in Patterson, CA by Weeks Robinson Properties;
- Majestic Chino Gateway, 1.45 million square feet developed by Majestic Realty Co. occupied by Wal-Mart;
- A Nordstrom Distribution Center, 1.14 million square feet, developed by H & M Co. Inc. in the Philadelphia market;
- Under Armour Distribution Center/Athlete’s Way, a 1.08 million square-foot distribution center in Nashville by Panattoni Development Co.;
- Stryker Business Center, 811,000 square feet building built in the Kent Valley industrial submarket in the Seattle/Puget Sound market by IDS Real Estate Group.