CBRE Outlook: Industrial Market Momentum Expected To Continue In 2017
E-Commerce Expected to Drive Strong Demand, Continued Rent Growth, Tight Availability
Latest NewsSchneider Electric names Carlos Villa VP of U.S. industry business Transplace announces TPG is new equity partner Amazon/Whole Foods Deal May be Supply Chain Game Changer LIFT making excerpt from MH29.1 standard available for free MHI announces new leadership appointments for 2018 More News
Latest ResourceNew Attitudes for S&OP / IBP to Keep Pace with Evolving Markets Thursday, August 24, 2017 | 2pm ET
The industrial market, fueled by the rapid growth of e-commerce, has been the juggernaut of U.S. commercial real estate in recent years. While that momentum eventually will wane, it isn’t expected to do so this year, according to CBRE Group, Inc.’s 2017 forecast for U.S. commercial real estate.
Overall, CBRE’s outlook for the U.S. economy in 2017 is “mildly optimistic,” tempered by uncertainty about the ultimate extent and nature of the new presidential administration’s policies. However, among CBRE’s more definitive conclusions is that both cyclical and structural factors should provide sustained momentum for the industrial market this year.
CBRE foresees the average U.S. industrial rent, which was on track to set a new all-time high by the end of 2016, increasing by roughly 5 percent in 2017. The company also expects net demand for new industrial space to continue to outpace the slow but steady increase in new construction, which it has each year since 2010. The market’s primary engine remains e-commerce.
Market research firm Forrester predicts that U.S. online sales will increase by 9.3 percent annually over the next five years to $523 billion. At that rate, CBRE calculates that 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 sq. ft. of warehouse and distribution space, depending on inventory attributes and level of automation.
In context, net demand from all industrial users in 2016 is estimated to total 250 million sq. ft. once final numbers are tallied. “E-commerce users typically need two to three times as much space as a traditional industrial occupiers due to e-commerce’s use of more labor and automation,” said Adam Mullen, CBRE’s Senior Managing Director of Industrial & Logistics, the Americas. “Thus, as e-commerce growth continues unabated, industrial-market conditions will remain favorable throughout 2017.”
Once the industrial market taps the brakes a bit, it appears likely to settle into a new baseline.
“The industrial market of this cycle has exceeded all historical precedent for its growth,” said David Egan, CBRE’s Head of Industrial & Logistics Research, the Americas. “The reason is that e-commerce has created a sustainable, structural shift in the market. 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.”
Egan told SCMR in an interview that he thinks that 2017 is likely to mirror 2016 in that demand will be broad-based but that the core distribution hubs and population hubs will remain the focus.
“From a rent growth point of view, I think the very tight (low vacancy rates) core markets such as Los Angeles, Inland Empire, Oakland, Chicago, Seattle, Miami, and New Jersey will see 3-5% or greater growth. Construction has picked up in these markets and is getting close to meeting demand which will slow the rate that vacancies are declining.”
About the AuthorPatrick Burnson, Executive Editor Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at [email protected]
Subscribe to Supply Chain Management Review Magazine!Subscribe today. Don't Miss Out!
Get in-depth coverage from industry experts with proven techniques for cutting supply chain costs and case studies in supply chain best practices.
Start Your Subscription Today!
The Customer-Centric Supply Chain The Supply Chain Workforce of the Future View More From this Issue