North American Highlights: Big Box Market Report

As e-commerce has grown rapidly, the location and functionality of distribution centers have become even more integral in supply chain operations.

As a result, large “big-box” distribution centers with enhanced amenities have sprung up over the past decade in core regional markets such as Chicago, the Inland Empire, Dallas, Northern-Central New Jersey, Eastern Pennsylvania-Southern New Jersey, Atlanta and Toronto. But in the past two years, the rising importance of next-day and same-day delivery has also created an explosion in demand for big-box product in secondary markets, especially near large population centers and logistics hubs like seaports, inland ports and air cargo ports.

What Constitutes a Big Box Building?

  • 200,000 SF or larger industrial building
  • Primarily used for distribution
  • Ceilings heights of 28′ clear or greater
  • Pre-cast or tilt-up concrete construction

North America Overview

Overall, the North American big-box market is riding a wave set by strong fundamentals in 2016, a year that saw all-time records in every statistic tracked. While this pace of activity seemed impossible to sustain, leasing activity and net absorption for the first half of 2017 are near the pace of the same period in 2016.

Activity continues to be dominated by, which leased five buildings totaling 4.1 million square feet during the first half of 2017 in the 14 markets highlighted in this report. Big-box vacancy rates finished midyear 2017 at an all-time low of 6.2%, while asking rents and under-construction product levels rose to new all-time highs.

On the investment side, capitalization rates remained at a record-low 5% in the first half of the year. While demand for big-box product remains strong in core markets, the decreased amount of product to purchase in these markets has pushed investors into secondary markets, where fundamentals are improving.

There are headwinds to look out for in the second half of the year, however, including an increase in demand for smaller warehouses close to urban centers that might reduce big-box demand. This trend of “lean warehousing” is on the rise as occupiers lease multiple buildings of 50,000 square feet to 200,000 square feet in order to focus on particular products and increase delivery speed to the end consumer.

This shift could ultimately lower demand for big-box buildings, particularly those under 750,000 square feet — though demand for this product remains robust for now. In addition, an overall shortage of big-box supply in Toronto and the West Coast and Northeast regions of the United States — where vacancy rates were under 5% in the first half of 2017 — could reduce leasing activity in the coming quarters.

Yet the big-box sector seems poised for continued growth: The North American economies remain strong, e-commerce continues to grow at a faster rate than traditional in-store retail and ports throughout North America continue to post growing inbound container volumes. These drivers should outweigh the headwinds and create strong demand and rental rate growth in big-box markets for the foreseeable future.

Colliers Expert Opinion

The Eastern Pennsylvania-Southern New Jersey-Northern Delaware distribution corridors are thriving, driven by sustained demand for retail, manufacturing and consumer products supply chain operations as well as the area’s growth as a destination for e-commerce fulfillment and last-mile distribution. The market is at the intersection of the major East Coast population centers and offers a multi-modal transportation system with an extensive interstate network (I-95, I-78, I-80, I-81 and I-83), freight rail, air cargo operations and proximity to a five-state port system.

MARK CHUBB, Senior Managing Director, Colliers International

Mark Chubb specializes in the sale and leasing of industrial properties throughout the Northeast portion of the U.S.

Eastern Pennsylvania – Southern New Jersey

At approximately 233 million square feet, the Eastern Pennsylvania-Southern New Jersey market is the second-largest big-box market in North America. With more than 58 million people within 250 miles of its core, a plethora of logistical advantages and an ample amount of developable land (especially in the Lehigh Valley), the market continues to post robust fundamentals. This is evidenced by the more than 10 million square feet of big-box leasing activity in the first half of 2017 — already nearly double the 2016 total and an all-time record for the market over any six-month period.

This record amount of leasing activity was helped by three new leases of more than 1 million square feet signed in the first half of the year. Strong leasing in buildings of more than 750,000 square feet has led to a large amount of development, with more than 8 million square feet under construction in this size range. With economic conditions continuing to improve and the surrounding East Coast ports performing well, big-box fundamentals should remain healthy in the region for the foreseeable future.

Major Logistics Drivers

The Eastern Pennsylvania-Southern New Jersey market is one of the most logistics-friendly markets in the country. The region is centrally located along the U.S. East Coast, giving it the capability to handle container volumes from three major seaports: the Port of New York and New Jersey, the Port of Baltimore and the Port of Philadelphia.

Two Class I railroads (CSX and Norfolk Southern) and 100 major interstate interchanges are located within the region. In addition, five international airports with major cargo handling capabilities are within 90 minutes of the region.

Unless otherwise specified, all report data is for 1H 2017 (as of June 30, 2017).

JAMES BREEZE, National Director of Industrial Research, Colliers International

James brings nearly 12 years of industry research expertise and focuses on analyzing industrial property trends and compiling Colliers’ thought leadership.