North American Big-Box Market Reaches Record High

Building of new “big-box” warehouse space increased almost six times in four years to 60 MSF in 2015. An additional 74 million square-feet is set to be complete in 2016.

If you harbor any doubt that e-commerce today is a global force impacting a multitude of industries, a recent Colliers report should banish it from your mind. The Big-Box Market Report, a 2016 outlook report produced by the Colliers Industrial Logistics & Transportation Solutions Group, reveals that 2015 was one of the strongest years to date for the industrial real estate sector in North America. That sector’s outstanding performance — as you might have guessed — is largely due to the continued popularity of online shopping.

Based on Colliers research of early activity, all signs point to 2016 being another strong year for occupier demands — especially as the growing pressure from e-commerce for swift logistics continues its influence across North America and beyond.

So what is a big-box building? It’s not a building that houses a “big-box” retailer like Walmart or Target, but it is a building that might serve such a retailer’s brick-and-mortar operations and, increasingly, online sales. Big-box buildings are defined as large industrial buildings with 300,000 or more square feet and ceilings of 28’ or higher. They are built using pre-cast or tilt-up concrete construction. Since they are primarily used as distribution centers, the sturdy construction and oversized floor plans are necessary to move large amounts of goods in and out of the buildings.

So how hot is the big-box market? At the end of the second quarter there were 1,908 big-box buildings in North America — totaling 1.07 billion square feet — and only 157 of those buildings were fully vacant. But even more telling are the big investments being made in big-box buildings. In 2015, 60 million square feet of new big-box space was delivered and more than half of that inventory was developed speculatively. This shows tremendous investor confidence in the rise of the big-box distribution centers. In fact, big-box construction activity grew every quarter in 2015 and it continues to expand in 2016.

The rush to build bigger and better fulfillment and/or distribution centers comes as shopping has steadily moved online. In 2015, online sales in the United States alone accounted for $341.7 billion, a 15% increase over 2014. By crunching the numbers released from the U.S. Department of Commerce in February 2016, the folks at InternetRetailer.com figured out that online sales account for all retail sales growth after factoring out goods that one simply doesn’t buy online (yet), like cars and fuel.

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Tri-State at a Glance

  • The New Jersey, Eastern Pennsylvania, and Northern Delaware markets combine to make one of the most dynamic regions in the country. Demand is driven by logistics and e-commerce users looking for modern Class A space near the largest population base in the country.
  • There are 278 existing big-boxes in the region totaling 172.0 MSF.
  • 22 big-boxes totaling 14.4 MSF were added to the inventory in the past 12 months.
  • There was 18.4 MSF of leasing activity in the first half of 2016 — the most for a core North American market.
  • There was over 4.9 MSF of absorption in the second quarter and nearly 10.2 MSF this year to date.
  • 9.4 MSF of new projects were completed in the first half of 2016, a large majority (80.2%) of it build-to-suit (BTS).
  • Effective rents vary across markets averaging $7.69 PSF/YR NNN in Northern New Jersey and $5.04 PSF/YR in the Southern New Jersey/Eastern Pennsylvania markets.
  • The market locations, amount of available land for development, and increased demand from the Panama Canal expansion, are expected to keep fundamentals sound for the foreseeable future.

e-commerce-graphic40% OF BIG-BOX DEMAND IS FROM E-COMMERCE RETAILERS. THESE SPECIALIZED FACILITIES ARE CONTINUING TO EVOLVE & WILL RESULT IN FURTHER MARKET EXPANSION.