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Industrial Boom: How The 14 Largest Big-Box Industrial Markets Are Faring This Year

Industrial real estate is the cream of the crop of America's commercial real estate market, setting records across the board in 2016, from rent growth to net absorption — and research shows 2017 is keeping pace.

Industrial Space

Big-box industrial properties larger than 200K SF sustained robust leasing activity in the first half of the year, with national vacancy rates reaching an all-time low of 6.2%, according to Colliers International’s North American Big Box Industrial report. In addition, cap rates remained at a record low of 5%. 

Though demand for big-box product is strong, there is a growing shift in favor of smaller, leaner warehouses and distribution centers fueled by online and physical retailers' need to be closer to consumers. This shift could moderately impact leasing activity for larger facilities toward the latter half of the year, but Colliers estimates the shift will not impact big-box industrial fundamentals too strongly.

"The fundamentals of the business are still very strong. Absorption may not be at record levels, but it is near those levels," Colliers President, Brokerage Services and Industrial for the U.S. Dwight Hotchkiss said. "From a historic standpoint, we still see strong absorption in all markets and strong demand in secondary markets and we see this momentum carrying over in to 2018.”

Using Colliers research, Bisnow highlighted the 14 largest big-box industrial markets. 

1. Inland Empire, California

Warehouse, industrial, distribution center
The average height of warehouses and distribution centers has risen nine feet in the past 50 years.

Total Big-Box Buildings: 630

Total Vacant Buildings: 31

Vacancy Rate: 4.3%

Rents: $5.16/SF

Net Absorption: 6M SF

Under Construction: 19.1M SF

Inland Empire is the largest big-box industrial market in North America with 310M SF of product. The market is a leader in terms of e-commerce distribution centers, with Amazon accounting for 7M SF in the region. Vacancy rates dropped to 4.3% from 6.7% in the first half of 2016, and rents increased modestly to $5.16/SF from $4.68/SF in 2016. 

2. Toronto, Canada

Total Big-Box Buildings: 612

Total Vacant Buildings: 27

Vacancy Rate: 2.7%

Rents: $6.38/SF

Net Absorption: 2.2M SF

Under Construction: 3M SF

The second-largest big-box industrial market in North America in terms of building count, and the third-largest in square footage, Toronto is home to major e-commerce players and global retailers including Amazon, eBay and IKEA. Vacancy rates dropped to 2.7% in the first half of the year from 3.4% during the same period in 2016. In addition to increased absorption, rents jumped to $6.38/SF from $5.51/SF in 2016. 

3. Chicago, Illinois

Total Big-Box Buildings: 538

Total Vacant Buildings: 37

Vacancy Rate: 7.7%

Rents: $4.54/SF

Net Absorption: 8.5M SF

Under Construction: 12.1M SF

Big-box industrial space in Chicago is in high demand. Strong logistics drivers and a population of 37 million people within 250 miles keep the market buzzing. Still, robust new development caused vacancies to jump to 7.7% midyear, up 70 basis points from 2016. Vacancy rates also increased to 7.7% from 2016’s 7.3%. 

4. Dallas-Fort Worth, Texas

Total Big-Box Buildings: 478

Total Vacant Buildings: 33

Vacancy Rate: 10.1%

Rents: $3.83/SF

Net Absorption: 6.7M SF

Under Construction: 17.5M SF

Dallas is among the fastest-growing bog-box industrial markets in North America, which Colliers attributes to an abundance of available land to build and a robust labor force. The market has 17M SF under development, driven by demand from e-commerce players and delivery service companies like FedEX and UPS. Vacancy rates remained stable during the first half of the year, while rents inched upward to $3.83/SF from $3.19/SF in 2016. 

5. Eastern Pennsylvania — Southern New Jersey

Warehouse, industrial, distribution center, cargo, freight

Total Big-Box Buildings: 450

Total Vacant Buildings: 16

Vacancy Rate: 4.6%

Rents: $5.06/SF

Net Absorption: 6.7M SF

Under Construction: 11.4M SF

This market is the second-largest in terms of square feet, housing 233M SF of big-box industrial space. Demand is strong, with users leasing 10M SF during the first half of 2017, doubling the all-time record set in 2016. Rents remained flat at $5.06/SF while new supply under construction declined to 11.4M SF from 2016’s 12.6M SF. 

6. Atlanta, Georgia

Total Big-Box Buildings: 362

Total Vacant Buildings: 33

Vacancy Rate: 11%

Rents: $3.49/SF

Net Absorption: 7.4M SF

Under Construction: 13.1M SF

Strong leasing activity in Atlanta pushed absorption of big-box industrial product up 6% to 7.4M SF in the first half of the year. Demand has also driven construction up about 11% to 13.3M SF. The market boasts a 5.5% cap rate, its lowest rate on record. 

7. Northern-Central New Jersey

Total Big-Box Buildings: 228

Total Vacant Buildings: 8

Vacancy Rate: 3.7%

Rents: $6.08/SF

Net Absorption: 2.3M SF

Under Construction: 2.8M SF

This market is one of the largest population concentrations in the country, with 61 million residents within a 250-mile radius. Vacancies dropped to a new record low of 3.7% and Colliers projects the vacancy rate will continue to fall as the market only has 2.8M SF under development, its lowest level of development in three years. 

8. Memphis, Tennessee

Total Big-Box Buildings: 169

Total Vacant Buildings: 4

Vacancy Rate: 6.9%

Rents: $3.25/SF

Net Absorption: 1.6M SF

Under Construction: 3.1M SF

Memphis hit a record in leasing activity in 2016, with users absorbing 14.8M SF of big-box space. Though 2017 has not maintained the same momentum, demand in the international distribution hub remains strong, spurred by tenants in search of modern fulfillment centers, including Sephora, McCormick & Co., GENCO and Synnex. 

9. Houston, Texas

Logistics, warehouse industrial

Total Big-Box Buildings: 161

Total Vacant Buildings: 9

Vacancy Rate: 7.3%

Rents: $5.18/SF

Net Absorption: 4.1M SF

Under Construction: 2.4M SF

Houston has been taking hit after hit of late. The market’s economy continues to limp along thanks to the state of the energy market, and Hurricane Harvey has exacerbated the problem. Despite these challenges, the city’s large population of 24 million people within a 250-mile radius makes it an ideal location for big-box occupiers. Vacancies dropped to 7.3% in the first half of the year compared to H1 2016’s 12.8%, and net absorption increased to 4.1M SF. 

10. Indianapolis, Indiana

Total Big-Box Buildings: 159

Total Vacant Buildings: 3

Vacancy Rate: 4.1%

Rents: $3.31/SF

Net Absorption: 2.4M SF

Under Construction: 5.4M SF

Indianapolis’ big-box industrial market is still growing. The burgeoning market is close to 43 million people within a 250-mile radius and its business-friendly tax and financial incentives have spurred robust leasing activity recently. Vacancy rates took a dive in H1, to 4.1% from 2016’s 10.1%. Demand is also spurring crazy construction compared to the prior year, with 5.4M SF of big-box space under development.

11. East Bay-Central Valley, California

Total Big-Box Buildings: 146

Total Vacant Buildings: 4

Vacancy Rate: 4.7%

Rents: $6.20/SF

Net Absorption: 170K SF

Under Construction: 4.7M SF

This tech hub has seen a rise in industrial leasing activity thanks to e-commerce demand. Vacancy rates remained low, but rose to 4.7% from 2.6% during the same period in 2016. As for construction, available land in Oakland is limited, forcing developers to build in the Central Valley area. More than 70% of the current development is concentrated in the Central Valley. 

12. Cincinnati, Ohio

Warehouse, industrial real estate

Total Big-Box Buildings: 145

Total Vacant Buildings: 4

Vacancy Rate: 3.8%

Rents: $3.75/SF

Net Absorption: 2.7M SF

Under Construction: 3.4M SF

E-commerce players in need of distribution hubs are finding a home in Cincinnati, which has about 40 million people within a 250-mile radius. This has resulted in a pullback in construction for big-box product, and a slight decline in midyear leasing activity to 3.2M SF compared to the 3.4M SF leased in the first half of 2016.

13. Columbus, Ohio

Total Big-Box Buildings: 120

Total Vacant Buildings: 8

Vacancy Rate: 7.9%

Rents: $3.22/SF

Net Absorption: -360K SF

Under Construction: 2.9M SF

Leasing activity pulled back in Columbus compared to 2016, resulting in a negative 360K SF being absorbed the first half of the year. Colliers projects this slowdown is temporary, and will rebound in the second half of the year thanks to several large deals underway. Notable sales during the period include a little more than 1M SF purchased by Prologis at 5330 Crosswinds Drive. Continental Tire expanded its lease to 417K SF during the period as well. 

14. Kansas City, Missouri

Total Big-Box Buildings: 87

Total Vacant Buildings: 6

Vacancy Rate: 11.3%

Rents: $4.26/SF

Net Absorption: 2.1M SF

Under Construction: 6.7M SF 

Kansas City is the smallest industrial market in North America. The market is about 10 times smaller than Inland Empire with 37M SF of big-box real estate under its belt. Rents ticked up to $4.26/SF from $4.15/SF in 2016, and net absorption jumped by 1M SF to 2.1M SF during the first half of the year.