Wednesday, January 26, 2022

Traditional Retailers, Not Pure E-Commerce Sellers, Led to Record Large Warehouse Leases

 By Linda Moss CoStar News

Big warehouse leases hit a record last year, driven by not only e-commerce but traditional retailers as the economy rebounded and the boom in the U.S. industrial market forged ahead.

Companies committed to 57 warehouse leases of 1 million square feet or larger in 2021, a 19% increase from 2020. By market, Chicago led the list with the greatest number of the top 100 lease transactions, at 12, representing 12 million square feet.

The company looked at the increase in mega-warehouse leases as part of its analysis of the 100 largest U.S. industrial and logistics leases last year. It found among those 100 leases the average 2021 transaction size increased to 1,053,000 square feet, slightly above 2020’s average of 1,038,183 square feet. 

The industrial market overall is so strong that the demand has been outstripping supply, with record-low vacancy rates and rents soaring. While e-commerce and juggernauts such as Amazon have fueled a lot of logistics demand in the past, CBRE instead found general retail and wholesale dominated 2021’s largest industrial leases. General retail sales have been rising after the peak of the pandemic in 2020, and they increased about 14% this holiday season, with shoppers returning to stores and malls. On top of that, even traditional retailers need more warehouse space to hold merchandise to fulfill their online orders.

“The trend of broad industrial demand by a variety of industries is expected to continue this year, as strong retail sales and the need to hold more inventory close to consumer markets is expected to increase the average transaction size. A possible headwind to this forecast is a dwindling supply of mega facilities, especially in core markets such as central New Jersey with little land available for development.”

The industry making up the largest share of the 100 biggest leases was general retail and wholesale, which recorded 44 transactions for 46.1 million square feet. That was a significant increase from 2020, when that sector had 32 such leases, representing 35 million square feet. E-commerce-only occupiers, last year’s leader, were second at 21 deals, for 27 million square feet, followed by food-and-beverage users at 15 deals, for 14.2 million square feet.

The brokerage’s study was notable in “that only one quarter of the deals were signed by e-commerce-only firms,” Adrian Ponsen, CoStar’s director of U.S. industrial analytics, said in an email.

“This is a sign that the recent surge in industrial leasing isn’t just about households shopping online more during the pandemic, it is also about financially healthy U.S. consumers that are spending more across a broad range of brick-and-mortar retail categories."

Pennsylvania Is a Leader

The Pennsylvania Interstate 78/81 corridor — an area that includes Lehigh Valley — was just behind Chicago in terms of the greatest number of the top 100 transactions, with 11. But that area of the Keystone State racked up the most square feet, at 12.4 million.

“One thing that stands out from the report is that thanks to its optimal location within a half day’s drive of the largest cluster of purchasing power in the U.S., Pennsylvania’s I-78/I-81 corridor continues to garner an outsized share of leases. It registered a comparable number of top 100 leases to what Chicago and Dallas-Fort Worth tallied, despite having an industrial inventory that is only about two-thirds the size of those other major markets.”

Scranton, Lehigh Valley and Harrisburg are the major logistics hubs on Interstates 78 and 81, “but many smaller ones are popping up along those highways,” according to Ponsen.

As industrial space has tightened in north and central Jersey, developers have been going over the border to Pennsylvania to build massive distribution hubs. Land is more available and cheaper there than in the Garden State, driving a surge in construction.

The company also found that California’s Inland Empire posted 10 large transactions. And Greenville-Spartanburg, South Carolina, a fast-growing Southeast market, made the top 10 for the first time, according to the brokerage.

The complete list of the top leading markets in terms of warehouse leases, by number of transactions and square feet, is:

  • Chicago, 12 leases, 12 million square feet.
  • Pennsylvania’s Interstate 78/81 Corridor, 11 leases, 12.4 million square feet.
  • California's Inland Empire, 10 leases, 10.2 million square feet.
  • Dallas-Fort Worth, nine leases, 8.6 million square feet.
  • Atlanta, eight leases, 8.4 million square feet.
  • Indianapolis, six leases, 5.5 million square feet.
  • Phoenix, five leases, 6 million square feet.
  • Columbus, Ohio, five leases, 5 million square feet.
  • Central Jersey, five leases, 4.6 million square feet.
  • Greenville-Spartanburg, South Carolina, three leases, 2.7 million square feet.

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