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Q3 industrial real activity activity remains strong, says JLL

When it comes to the state of the industrial real estate market, landlords continue to have the upper hand over tenants, due to ongoing market factors, according to the Third Quarter Industrial Outlook report recently issued by commercial real estate firm JLL.

By ·
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By ·

When it comes to the state of the industrial real estate market, landlords continue to have the upper hand over tenants, due to ongoing market factors, according to the Third Quarter Industrial Outlook report recently issued by commercial real estate firm JLL

The key driver for this thesis cited by JLL in the report focuses on how demand continues to outpace supply over the last 12 months, with over all industrial inventories having expanded by 1.3 percent.

“Every quarter we are seeing continued strong leasing activity, and that has spread across a number of different industries,” said Aaron Ahlburn, director of industrial research for JLL. “But by and large what we sort of all the retail-related sections of industry continue to help push demand higher and higher, and that is traditional retail, e-commerce, and 3PL and logistics-related delivery companies that continue to help propel leasing activity in the logistics sector.”

Looking at total U.S. absorption, JLL observed that more than one-third is derived from four key markets that indicate a bulk of the activity still remains in primary industrial cities. These markets include: Chicago at 6.4 percent; Houston at 8.5 percent; Dallas/Fort Worth at 8.6 percent; and Philadelphia/Harrisburg at 10.5 percent.

Ahlburn said it is not surprising these markets are leading the pack, considering that they are major population areas with either stable or growing population demographics.

“Growth in these areas speaks to the consumer economy driving a lot of leasing activity…around major population cities,” said Ahlburn.

Other key data points cited for strong third quarter industrial activity by JLL include:

  • developers having completed 151 million square-feet of new space through the first nine months of 2016, and 51.8 million square-feet in the third quarter, with the development pipeline expanding by 5.5 percent from the second quarter to the third quarter;
  • U.S. year-to-date absorption of up 10.0 percent annually, with over all tenants absorbing 67.9 million square-feet, which outpaced the 51.3 million square-feet in new deliveries;
  • third quarter vacancy is at 5.8 percent is down from 6.0 percent in the second quarter, with Los Angeles and Orange County still the lightest markets with vacancy under 2.0 percent; and
  • nearly 18.0 percent of all leases signed in the third quarter were tenants that were new to the markets, indicating that companies are continuing to grow by expanding their presence and entering new markets 

Even with a consistent growth pace in the industrial market, Ahlburn said there is clearly still room to run looking ahead.

“There is a stable economy, albeit one with lower growth, but it is being driven by a lot of consumer staples on the retail side and also consumer durables as well, and the housing market is also stable,” explained Ahlburn. “There is also room for more growth on the warehousing and distribution side, too.”

When asked to rank the top three types of occupiers for industrial estate property at the moment, Ahlburn cited e-commerce, traditional retail, and 3PL and logistics/parcel delivery players. 

Looking at the fourth quarter, Ahlburn said there is variability in some markets in regards to demand, but over all things are stable and steady with comntinued room for growth.

"In a lot of the markets we are in, we are dealing with a low level of vacancies, and that has sparked a push for higher rents, which is why we think the market is still continuing to push towards landlord variability," he said. "And here are not many spots to expand and grow outside of new construction."


About the Author

Jeff Berman, Group News Editor
Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman

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