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Will Amazon Continue To Dominate Warehouse Demand In 2017?

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NGKF senior managing director Adam Marshall

Industrial real estate was one of the top performing sectors in Chicago last year and 2016 ended with one of the most active quarters ever, according to NGKF's Q4 industrial market report. NGKF senior managing director Adam Marshall talked with Bisnow about some of the major numbers.

Over 7.1M SF of industrial space was absorbed in Q4, three times the amount absorbed in Q3. 2016 netted 15.3M SF of total absorption, nearly equaling 2015's 15.6M SF. The overall vacancy rate dropped 30 basis points in Q4 to 7.6%, and the Chicago market has seen 27 straight months of positive growth. During that time, 86.8M SF was absorbed and 62.1M SF has come online.

Sales activity topped $1.9B last year, with strong demand in institutional and Class-A assets leading the charge. Marshall said investor demand will reach the Class-B market this year as opportunities for Class-A assets shrink. For Q4, industrial sales totaled 2.7M SF and $324M. That's a dropoff from Q3's 6.5M SF and $543.2M, but Marshall said Q4's $120/SF average was a 58% increase over the previous quarter.

Stock photo of Amazon packages

Amazon is the leading driver of the market demand and that demand was strong across submarkets, Marshall told Bisnow. The e-commerce retailer absorbed 2M SF of warehouse space in December in the I-88, I-55 and Kenosha submarkets, which provide immediate access to expressways, labor and customers. Marshall said Amazon is just getting started. The company is forestalling profits to invest in infrastructure development. Amazon has even absorbed smaller warehouse space within the Chicago city limits to fulfill same-day deliveries.

Spec industrial development continued its torrid pace in 2016. Marshall said a record 20.5M SF was delivered last year, an 8% increase over 2015, and he's tracking 18.8M SF in deliveries for this year. He believes there's still some runway in 2017's early weeks for developers to find good sites and put them into immediate production, so the market is within striking distance of matching last year's delivery numbers.

Single-site development dominated the spec industrial deliveries last year. Developers can't build new buildings fast enough to meet demand. What isn't happening on the development side is multi-phase construction, which Marshall said is a drawback of tenant demand and a lack of availability of larger tracts of land.