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New wrinkle in total landed costs

By Patrick Burnson, Executive Editor
January 21, 2014

When the commercial real estate service Cushman & Wakefield released its year-end national market research data this week, some important regional advantages were outlined in detail.

For example, greater Los Angeles continued to lead the nation, with 35.8 million square feet in activity, followed by Chicago with 30.9 million square feet. Seventeen of the 37 markets tracked by Cushman & Wakefield reported increased activity in 2013.

Fourteen of these markets posted double-digit annual increases. Northern New Jersey posted an impressive 40.0 percent increase, while the PA I-81/I-78 Corridor recorded a 30.0 percent year-over-year increase.

Additionally, net demand is up 23 percent from last year, with only one out of 37 markets tracked recording negative absorption. Dallas/Fort Worth led the nation with 15.1 million square feet of occupancy gains in 2013, followed by the Inland Empire with 12.6 million square feet.

As a result, the U.S. vacancy rate is tightening rapidly. It fell to 7.5 percent in the fourth quarter, down 80 basis points from a year ago and 330 basis points lower than its recent peak in first quarter 2010. Analysts note that the overall vacancy rate has now declined for 13 consecutive quarters. In the warehouse sector, vacancy has reached its lowest rate in five years, declining for 15 consecutive quarters. Strong demand Class A space has led to its short supply.

The resulting upward pressure on rents brought the average direct asking rate to $5.92 per square foot in the fourth quarter of 2013, a 4.2 percent year-over-year increase. Rents are still 13 percent below their peak level achieved in 2008, but they have been inching up slowly since second quarter 2011.

Ultimately, these positive fundamentals have sparked a new wave of development. As the year came to a close, 79.4 million square feet of new industrial space was under construction, up 87 percent compared to year-end 2012. New development is particularly strong in Inland Empire, Chicago, Dallas/Fort Worth, Houston, Central New Jersey and the PA I-81/I-78 Distribution Corridor. Each of these markets has 4 million square feet or more under construction.

Ecommerce continues to drive demand for modern logistics facilities, analysts add. Online sales are anticipated to reach $370 billion by 2017, up from $231 billion in 2013, which will continue to benefit this sector. Traditional brick-and-mortar companies, like Home Depot and Walmart, also are playing a key role in the “industrial development pipeline.”

Analysts anticipate continued progress in 2014. “Less fiscal drag and reduced uncertainty should lead to stronger economic growth this year.

Considering that demand for industrial space has been consistently strong through the economic resurgence so far, it should remain so as the recovery becomes more robust, say Cushman & Wakefield researchers.

About the Author

Patrick 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 .(JavaScript must be enabled to view this email address).

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