The North American big-box market continues to ride a wave of robust demand brought on by a solid U.S. economy and, of course, the rapid rise of e-commerce.
In this unique, interactive report, the Industrial Logistics & Transportation Solutions 2018 Midyear Big-Box Review and Outlook examines the strength of the North American big-box industrial market during the first half of 2018 which includes the seven core North American big-box markets, as well as eight emerging secondary markets. We will go over fundamentals, take a look at demand factors including demographics and logistics capabilities and assess what lies ahead for the second half of 2018 and beyond.
Key takeaways from this report include:
- E-commerce demand continues to grow and now represents close to 11% of total non-auto retail sales. This demand is fueling big-box activity with over 83 million square feet of leasing activity and nearly 52 million square feet of absorption the first half of 2018.
- The Inland Empire remains the best performing big-box market in North America because of its excellent location, available land for development and strong labor force. This region led the nation in the first half with over 17 million square feet of leasing, and nearly doubled its net absorption compared with the same time last year at 11.9 million square feet.
- While 2017 activity was dominated by e-commerce retailers including Amazon.com, 2018 looks to be the year of the third-party logistics companies (3PL), with 3PLs signing a majority of the large transactions in the first half of 2018.
- On the investment side, capitalization rates dropped to a record-low 5.7% in the first half of 2018, with many core markets posting cap rates at or near 5%.
- While we predict fundamentals to remain robust the second half of the year, there are headwinds to look for. The issue causing the greatest concern is the availability of labor.
- Trade policies also bear watching. While the recent news that the U.S. and Mexico are nearing a deal on renewing NAFTA is welcome, and the fear of expanded tariffs with European allies seem to be dissipating, the increased tariffs on the number one importer of goods into the U.S., China, is still a concern, especially on coastal markets that heavily rely on imports for industrial real estate demand.
- Despite these headwinds, the big-box market 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 logistics drivers from the air, ground, sea and rail continue to post gains. These drivers should outweigh the headwinds and create strong demand and rental rate growth in big-box markets for the foreseeable future.