A report recently issued by Dallas-based industrial real estate firm CBRE shined a light on how demand for industrial and logistics warehousing space continues to increase.
According to the report, CBRE found that the largest 100 industrial lease transactions in 2022 included a record-high 63 deals for 1 million square-feet or more—known as “megawarehouses”—topping the 57 deals recorded in 2021. What’s more, it added that the average size of the top 100 leases was 1.07 million square-feet (MSF), supplanting the previous record, of 1.05 million MSF, set in 2021.
When looking at the sector verticals inking these megawarehouse deals, CBRE stated that traditional retailers and wholesalers represented 53 of the top 100, in taking steps to expand their respective footprints to “accommodate e-commerce sales growth and to hold more inventory to guard against supply chain disruptions.” That group was followed by 3PLs, with 18 signed leases, beating 2021’s 10 signed leases, and e-commerce companies rounded out the top three.
As for the markets seeing the most activity, for these leases, Southern California’s Inland Empire led the way, with 17 transactions, accounting for 20.9 MSF, followed by Chicago (11 transactions, for 10.4 MSF), Atlanta (eight transactions for 8.0 MSF), Savannah (six transactions for 6.8 MSF, and Dallas-Fort Worth (six transactions for 5.9 MSF).
“Despite an expected recession, the leasing of megafacilities is expected to remain solid this year as many occupiers continue to build out their e-commerce operations and sustain their inventory levels,” said John Morris, president of Americas Industrial & Logistics for CBRE, in a statement. “Strong demand for megawarehousing centers is expected to continue in 2023 and a large number of construction completions will provide more opportunities for expansion.”
James Breeze, Senior Director and Global Head of Industrial & Logistics Research, said that there are various drivers for the ongoing increase in the development of these megawarehouses.
“The U.S. industrial market has an overall vacancy rate of 3%,” said Breeze. “This under-supply combined with occupiers looking for modern building design to service growing e-commerce sales, a higher use of automation and key amenities to retain employees in a tight environment is leading to strong demand for first-generation space.”
The CBRE executive noted that the level of growth in 2022 was expected, saying that developers take notice of demand and corresponding positive fundamentals like low vacancies and record rent growth and followed suit with significant groundbreakings.
As for how things may play out in 2023, Breeze does not expect current growth levels to remain fully intact.
“The current economic environment is leading to lenders to put a pause on construction loans,” he said. “This is going to lead to a significant decline in construction starts in 2023. While this will not affect first-generation supply in 2023 due to record ongoing development, we could see an under-supply of first- generation space hitting the market in late 2024.”
When asked about the biggest benefits of these facilities for the occupiers, from a logistics and supply chain perspective, Breeze cited modern building amenities for today’s distribution, including high clear heights, more dock high doors and build outs for increased automation and employee comfort.