Jones Lang LaSalle
Big Markets! Big Boxes! Big Opportunities?
Raymond G. Torto, Principal & Chief Strategist
rtorto@tortowheatonresearch.com
While it's common to refer in a general way to the industrial market as if it were all the same, this market has many segments and niches. There is warehouse, manufacturing and R&D/Flex, not to mention attributes and strategies such as infill, exurban, tarmac, port, etc. Moreover, there's location, which seems to be everything these days. For instance, while many markets are experiencing strong industrial demand, the big distribution markets—Chicago, Atlanta, Riverside, Los Angeles and Houston—are accounting for about one third of all new demand. With regard to warehouse space, the big markets are getting even bigger!
And it's not just a case of the big markets getting bigger; the "boxes" themselves are getting bigger. Big boxes, i.e., enormous new warehouses larger than 400,000 sf, are the investment vehicle du jour! And, according to the TWR/Dodge Pipeline, the majority of these big boxes are built in the largest distribution centers: Chicago, Atlanta and Riverside. Big markets get big boxes.
Some of the research I have been personally involved with for our clients has focused on the warehouse segment for very big boxes. Nationally, this segment is about 1.1b sf, but our clients tend to be focused mostly on the newest of these properties—those built since 2000. The stock of warehouse space in buildings 400,000 sf or greater that have been built since 2000 is about 221m sf. And guess what? Three markets—Riverside, Chicago and Atlanta—claim 41% of that stock. Big markets, big boxes!
Construction is one thing, but what of demand? To obtain some insight on these markets we looked at absorption growth by submarket in these three metropolitan areas (see table below), and, wouldn't you know, there is big demand for big boxes in big markets.
With overall national demand for warehouse space growing at only 2.6%, these large submarkets look very healthy from a demand viewpoint. In fact, I was surprised to learn that occupied square footage of big boxes has grown 33% since 2000 in Riverside! By contrast, Atlanta grew about 6% and Chicago 2.6%.
What of performance? Referring to the table below, in the Big Box segment, Chicago is roughly the same size as Riverside and Los Angeles combined, and these areas have seen about the same growth since 2000. Of interest is the tightness of the California markets compared with Chicago. Supply of the big boxes in California is keeping pace with demand and the markets have been improving since the slow days of 2001's recession, as shown in the graph below. Chicago on the other hand must have more land available and/or more developers!
We are told that the Chicago situation is one where spec developers are building in anticipation of tenants. Given the pace of development and the high availability in these larger buildings, this is an excellent situation for tenants looking to acquire space quickly. As for investors, the opportunities in the big box warehouse market depend on investment objectives and risk tolerance. If you are in this segment, you unfortunately only have a few big markets in which to "play," but if you take a close look it appears that market fundamentals vary widely.
Big Markets! Big Boxes! Big Opportunities?
Raymond G. Torto, Principal & Chief Strategist
rtorto@tortowheatonresearch.com
While it's common to refer in a general way to the industrial market as if it were all the same, this market has many segments and niches. There is warehouse, manufacturing and R&D/Flex, not to mention attributes and strategies such as infill, exurban, tarmac, port, etc. Moreover, there's location, which seems to be everything these days. For instance, while many markets are experiencing strong industrial demand, the big distribution markets—Chicago, Atlanta, Riverside, Los Angeles and Houston—are accounting for about one third of all new demand. With regard to warehouse space, the big markets are getting even bigger!
And it's not just a case of the big markets getting bigger; the "boxes" themselves are getting bigger. Big boxes, i.e., enormous new warehouses larger than 400,000 sf, are the investment vehicle du jour! And, according to the TWR/Dodge Pipeline, the majority of these big boxes are built in the largest distribution centers: Chicago, Atlanta and Riverside. Big markets get big boxes.
Some of the research I have been personally involved with for our clients has focused on the warehouse segment for very big boxes. Nationally, this segment is about 1.1b sf, but our clients tend to be focused mostly on the newest of these properties—those built since 2000. The stock of warehouse space in buildings 400,000 sf or greater that have been built since 2000 is about 221m sf. And guess what? Three markets—Riverside, Chicago and Atlanta—claim 41% of that stock. Big markets, big boxes!
Construction is one thing, but what of demand? To obtain some insight on these markets we looked at absorption growth by submarket in these three metropolitan areas (see table below), and, wouldn't you know, there is big demand for big boxes in big markets.
With overall national demand for warehouse space growing at only 2.6%, these large submarkets look very healthy from a demand viewpoint. In fact, I was surprised to learn that occupied square footage of big boxes has grown 33% since 2000 in Riverside! By contrast, Atlanta grew about 6% and Chicago 2.6%.
What of performance? Referring to the table below, in the Big Box segment, Chicago is roughly the same size as Riverside and Los Angeles combined, and these areas have seen about the same growth since 2000. Of interest is the tightness of the California markets compared with Chicago. Supply of the big boxes in California is keeping pace with demand and the markets have been improving since the slow days of 2001's recession, as shown in the graph below. Chicago on the other hand must have more land available and/or more developers!
We are told that the Chicago situation is one where spec developers are building in anticipation of tenants. Given the pace of development and the high availability in these larger buildings, this is an excellent situation for tenants looking to acquire space quickly. As for investors, the opportunities in the big box warehouse market depend on investment objectives and risk tolerance. If you are in this segment, you unfortunately only have a few big markets in which to "play," but if you take a close look it appears that market fundamentals vary widely.
posted by Jones Lang LaSalle NJ News Blog at 3:39 PM
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