The U.S. industrial market continues to post robust fundamentals including record low vacancy rates and record high asking rents, as well as robust net absorption and development. The U.S. industrial market is booming because of occupiers’ need to expand and modernize distribution capabilities due to a strong U.S. economy and the rapid rise of e-commerce sales. Activity remains robust in core markets but is experiencing the highest rates of growth in secondary markets with growing populations, economic rental rates and land available for development, as well as close proximity to logistics hubs including seaports, inland ports, rail yards, air freight facilities and interstate highway systems.


While there are a plethora of markets across the U.S. posting improved industrial real estate fundamentals, we expect the 10 markets highlighted in this report to experience the most growth in the coming year and bring the highest number of opportunities for occupiers, developers and investors going forward. In this report we will analyze these 10 markets in depth, providing the area’s population demographics, logistics advantages, an insider’s perspective on what makes these markets tick and forecast industrial fundamentals in the coming year.

Industrial Services Contact:
Pete Quinn, SIOR
National Director, Industrial Services | USA
+1
317 713 2107
pete.quinn@colliers.com

Research Contact:
James Breeze

National Director of Industrial Research | USA
+1 602 222 5184
james.breeze@colliers.com

Cincinnati

The 4.2% overall vacancy rate is lowest in a decade.

The Greater Cincinnati region enjoys a diverse industrial base, powered by advanced manufacturing, automotive and e-commerce as the primary drivers. E-commerce has rapidly emerged as the number one driver. The increased interest in our thriving economy has brought numerous new developers to our market providing the speculative product that has attracted many new companies. Nearly every market can attribute some level of growth in the industrial sector to Amazon, but Cincinnati is the only market that can say it landed the Amazon Prime Air Hub. This $1.5 billion investment on over 900 acres at the greater Cincinnati/ Northern Kentucky International Airport has produced increased activity. Already one of the fastest growing cargo hubs in North America, and ranked eighth for cargo operations, the airport will  see accelerated growth.  Being able to reach 65% of the U.S. population within a day’s drive positions Cincinnati as a key location for logistics operations. John B Gartner, Senior Vice President & Principal | Cincinnati

Cincinnati Key Statistics

  Inventory Overall Vacancy Rate Overall Net Absorption New Supply (Construction) Under Construction Asking Rental Rate (PSF/YR)
2007
237,368,487 9.0% 2,128,8694,291,9972,725,728$3.30
2008
240,755,450 9.2% 525,3163,186,863720,135$3.26
2009
241,625,585 10.4% -2,911,971 870,135-$2.76
2010
241,768,159 9.7% 2,225,528156,400366,096$2.93
2011
242,570,959 9.3% 1,165,230802,800930,588$2.84
2012
243,342,912 9.2% 856,3641,072,0461,227,046$2.75
2013
244,809,912 7.5% 4,031,6771,150,0002,145,364$3.05
2014
245,973,825 5.4% 6,142,8281,808,1643,156,250$2.81
2015
250,081,105 5.1% 4,708,6363,419,2743,825,500$3.36
2016
254,039,738 4.8% 5,449,7254,622,9173,438,345$3.66
2017
257,725,642 4.2% 5,094,7003,587,5184,503,628$4.19
 

Key Statistics by Property Size

  Overall Vacancy Rate 2016 Overall Vacancy Rate 2017 Asking Rental Rate 2016 Asking Rental Rate 2017
10,000-24,999 SF
2.4% 2.1% $5.55$6.27
25,000-49,999 SF
4.2% 4.2% $5.49$5.60
50,000-74,999 SF
5.2% 5.3% $5.75$5.62
75,000-99,999 SF
4.6% 3.7% $4.32$4.99
100,000-249,999 SF
4.0% 6.0% $3.65$4.08
250,000-499,999 SF
5.2% 3.9% $3.72$3.59
500,000 SF +
10.0% 10.7% $3.40$3.73
Key Strengths:

The Cincinnati industrial market is becoming a premier e-commerce destination because of its central location, large workforce and excellent transportation advantages. More than 35 million people live within 250 miles of Cincinnati, nearly 20% of whom are millennials. Cincinnati’s demand from e-commerce companies has dropped industrial vacancies to all-time lows, increased new development and made Cincinnati one of the top industrial growth markets in the country in 2017.

Logistics Driver:

The Amazon Prime Air hub at the Cincinnati/Northern Kentucky International Airport (CVG) will be a major boon to an already strong e-commerce market. When fully functional, the hub will employ 2,000 full-time employees as Amazon looks to expand its Prime Air capabilities. The airport is not all about Amazon however as it is one of the largest air cargo ports in the country, finishing eighth in total cargo in 2016. The market has the advantage of also being near the Louisville International Airport, which is ranked the third largest cargo airport in the U.S. in 2016, and home to UPS international air-hub.

Vacancy:

After peaking at nearly 10.4% in 2009, vacancies have declined substantially, finishing 2017 at 4.2%, 0.6 percentage points lower than the previous year and the lowest vacancy rate in a decade. Vacancy rates remained near historic lows despite continued robust development in the market.

Absorption:

The Cincinnati industrial market recorded positive net absorption of 5.1 million square feet in 2017, the eighth consecutive year absorption was positive. The momentum Cincinnati experienced in 2017 looks to continue in 2018, evidenced by the growing number of tenant requirements in the market. At the end of 2016, tenant demand totaled over 10 million square feet, leading to robust occupancy gains in 2017. Tenant demand has spiked again. As of year-end, tenant requirements totaled 11 million square feet suggesting high levels of net absorption and decreasing vacancy during the first two quarters of 2018.

Development:

At year-end, construction completions reached nearly 3.6 million square feet, the third consecutive year new construction surpassed 3 million square feet. Since the end of the recession, newly completed projects total 16.6 million square feet, while net absorption has equaled roughly 30 million square feet; a significant factor is the rapidly declining vacancy rates in the market. With absorption continuing to outpace new supply, a large amount of product has broken ground with 4.5 million square feet currently under construction, the most in over a decade.    

Asking Rents:

The average overall market-weighted asking rental rate is $4.19 per square foot per year NNN, an increase of more than 14% compared with the same time a year ago. Asking rates for product 200,000 square feet and above finished 2017 at $3.88 per square foot per year NNN. This product size range has increased by an average of 8.2% annually over the past five years. These rent gains have allowed developers to revisit sites that were ruled too costly in the past, opening up additional land in a site-constrained market.  

Indianapolis

8.5 million square feet of new construction is the most for the market on record.

“Known as The Crossroads of America, the Indianapolis market has the distinct geographic and logistical advantage of being the intersection point of eight interstate systems. As a result, 75% of U.S. and Canadian populations can be reached in a day’s drive. Indiana continues to earn top marks for its appealing tax structure and business-friendly regulatory environment. Because of this, Indianapolis continued to post robust fundamentals in 2017 and is competing with all markets as the go-to regional distribution market of the midwest.” Brian Zurawski, SIOR, Executive Vice President & Co-Market Leader | Indianapolis

Indianapolis Key Statistics

  Inventory Overall Vacancy Rate Overall Net Absorption New Supply (Construction) Under Construction Asking Rental Rate (PSF/YR)
2007
------
2008
198,186,427 8.2% 4,050,3472,241,8193,405,520 $3.80
2009
204,229,286 9.3% 2,067,4364,475,397154,915 $3.55
2010
206,056,960 9.1% 1,799,995304,6921,555,980 $3.60
2011
209,426,849 7.0% 6,466,0181,782,980351,200 $3.48
2012
213,349,231 6.6% 3,163,0331,695,9643,712,931 $3.64
2013
218,634,616 6.8% 3,856,5054,293,1853,232,226 $3.56
2014
225,056,692 6.6% 6,669,9196,400,0145,538,397 $3.81
2015
232,253,790 8.0% 3,527,5527,032,6982,646,105 $3.78
2016
236,925,857 5.4% 9,896,8873,928,4426,389,933 $3.83
2017
245,905,362 5.6% 7,537,6668,493,0185,473,128 $3.89
 

Key Statistics by Property Size

  Overall Vacancy Rate 2016 Overall Vacancy Rate 2017 Asking Rental Rate 2016 Asking Rental Rate 2017
10,000-24,999 SF
5.1% 5.9% $6.30$5.99
25,000-49,999 SF
5.0% 4.8% $5.64$6.22
50,000-74,999 SF
4.7% 4.9% $4.85$6.09
75,000-99,999 SF
4.9% 5.1% $5.11$4.38
100,000-249,999 SF
5.3% 5.4% $4.17$4.24
250,000-499,999 SF
4.9% 5.0% $3.55$3.38
500,000 SF +
7.8% 6.5% $3.20$3.41
Key Strengths:

The Indianapolis industrial market is becoming one of the most sought-after locations in the Midwest, competing with all markets, including Chicago, for major tenant’s regional distribution locations. Occupiers continue to flock to Indianapolis because of its central location, economic rents, abundance of available land and close proximity to a large population base. At the time of this report, more than 42 million people live within 250 miles of Indianapolis, more than 20% of whom are millennials.

Logistics Driver:

In addition to the substantial interstate highway system that passes through the market, Indianapolis is home to the second-largest FedEx hub in the world, which is a key component to the market’s success. Overall, the Indianapolis International airport ranks as the seventh largest cargo airport in the United States, just behind LAX in Los Angeles. The region is also home to a strong rail system that ranks third in the country for most freight rail providers.

Vacancy:

Vacancy rates remained low in 2017 despite a record amount of new construction. The overall vacancy rate finished 2017 at 5.6%, only 0.2 percentage points higher than 2016 and significantly lower than the recession-high vacancy rate of 9.3% in 2009. Activity is expected to remain strong in the coming year; combined with a projected slight decline in new development, this will keep vacancy rates low for the foreseeable future.

Absorption:

The Indianapolis industrial market recorded positive net absorption of 7.5 million square feet in 2017, the second highest annual absorption total in the past 10 years. Positive net absorption was primarily focused in the two submarkets with a large big box footprint: Northwest (3 MSF) and Southwest (3.4 MSF). Modern bulk product (buildings 100K+ with a 28’ clear height) accounted for 90% of the market’s absorption in 2017. Look for net absorption to stay the course in the coming year, as regional occupiers continue to locate and expand within the market because of its many logistic and economic advantages.

Development:

New development skyrocketed in 2017 with 8.5 million square feet completing construction, more than double the amount of new construction in 2016 and the most the market has completed on record. A large majority (7 million square feet) of the product completed in 2017 was speculative, which is more than 2015 and 2016 combined. A majority of the new development was in the Southwest submarket where 5.4 million square feet was completed. While new development may not keep up with the record levels in 2017, over 5.4 million square feet was under construction at year-end. This product is expected to be leased quickly as demand for new class A product increases in the coming year.

Asking Rents:

Despite robust fundamentals, asking rates remained stable in 2017 at $3.89 per square foot per year NNN, only $0.06 per square foot per year higher than the previous year. There were pockets of strong rent growth in 2017 however with product over 500,000 square feet increasing 6.5% and product 25,000 square feet to 49,999 square feet increasing 10.2% compared with the previous year. Asking rents will trends upwards in 2018 as more Class A space hits the market. With fundamentals including rents, absorption and vacancies all expected to remain strong in 2018, institutional investment will remain robust as Indianapolis will be one of the most popular markets in the region.

Kansas City

8.8 MSF of new supply from construction was the most on record.

“The Kansas City market continues to be a thriving industrial market as a result of its geographically-centralized location, superior infrastructure and business-friendly foreign trade zone program. Kansas City is home to the largest rail center in the U.S. by tonnage and is ideally located at the crossroads of the east-to-west corridor and the route from Mexico to Canada. Multiple intermodal facilities and infrastructure continue to spur development activity within the market. Four interstate systems converge upon Kansas City, resulting in more freeway-lane miles per capita than any other U.S. city, while allowing goods to be delivered to 85% of the nation’s population within two days." Ed Elder, SIOR, President | Kansas City

Kansas City Key Statistics

  Inventory Overall Vacancy Rate Overall Net Absorption New Supply (Construction) Under Construction Asking Rental Rate (PSF/YR)
2007
226,127,800 6.9% 4,358,6772,861,6991,251,938$4.23
2008
228,046,388 6.8% 2,132,6491,918,588121,925$4.26
2009
229,275,313 7.6% -294,734 1,228,92557,328$4.18
2010
229,382,641 7.8% 410,780107,328261,547$4.19
2011
229,889,282 7.9% 249,628506,641789,273$4.26
2012
230,678,369 6.2% 4,592,152789,0872,435,719$4.28
2013
233,366,719 6.1% 3,238,3712,688,3502,109,809$4.33
2014
237,568,694 6.2% 3,231,3594,201,9753,068,567$4.35
2015
240,587,178 6.1% 3,766,1693,924,4256,305,468$4.38
2016
248,573,139 6.6% 6,382,6318,655,9867,891,565$4.52
2017
257,393,326 6.7% 7,463,2478,820,1875,080,718$4.64
 

Key Statistics by Property Size

  Overall Vacancy Rate 2016 Overall Vacancy Rate 2017 Asking Rental Rate 2016 Asking Rental Rate 2017
10,000-24,999 SF
3.4% 3.1% $6.67$6.92
25,000-49,999 SF
4.5% 4.3% $5.49$5.70
50,000-74,999 SF
4.2% 4.6% $5.05$5.28
75,000-99,999 SF
7.8% 5.9% $4.30$4.27
100,000-249,999 SF
6.5% 6.1% $4.12$4.24
250,000-499,999 SF
10.1% 8.2% $4.11$4.16
500,000 SF +
7.1% 7.4% $4.05$4.03
Key Strengths:

Kansas City’s central location and multiple intermodal operations allow the growing e-commerce and distribution sector to quickly deliver goods. Many major retailers continue to invest in the market, evidenced by decade-high absorption and development in 2017. While Kansas City can reach a large percent of the U.S. populace in a few days’ drive, the surrounding population is also large and growing. In 2017, over 14 million people lived within 250 miles of the market’s core and this is projected to grow by over 2% in the next five years.

Logistics Driver:

Kansas City is one of the most logistics-friendly industrial markets in the country. Its ground, air and rail offerings rival all other markets in the U.S. Logistics Park Kansas City (LPKC) continued to grow and attract tenants at an unprecedented pace for the market in 2017. The park is served by BNSF Railway and continues to show the growing demand for occupiers to be near inland ports with a capacity to hold 17 million square feet of industrial buildings. There are 7+ million square feet of new distribution facilities at LPKC, with speculative and build-to-suit opportunities available.

Vacancy:

Due to a large amount of new development, the overall vacancy rate in Kansas City climbed slightly to 6.7% in 2017, a 0.1 percentage point increase compared with the previous year. Despite the increase, the overall vacancy rate remains much lower than the decade rate of 7.9% in 2011. The pace of new development seems to have slowed at year-end while demand remained high, meaning vacancies will most likely decrease in the coming year.

Absorption:

At 7.4 million square feet, net absorption in 2017 crushed the previous annual record of 6.4 million square feet in 2016. The market continues to do well with all occupier types, evidenced by large leases from the retail, wholesale and 3PL sectors. With demand from e-commerce expected to increase in the coming year, the Kansas City market will continue to thrive with record levels of absorption projected for the foreseeable future.

Development:

At year-end, construction completions reached an all-time peak of 8.8 million square feet, surpassing the previous record of 8.7 million square feet in 2016. New development was warranted in Kansas City, evidenced by the vacancy rate essentially remaining stable despite over 16 million square feet of new development the past 24 months. Under construction declined at year-end to only 5 million square, its lowest level since 2014, but with demand expected to increase, ground breakings should also increase in the coming quarters leading to another strong year for development in 2018.

Asking Rents:

Asking rates have risen steadily since 2009, finishing the year at $4.64 per square foot per year NNN. While rents have increased, they remain well below the national average. These economic rates will continue to be a draw for major tenants to enter and expand within the market in the coming year.  

Las Vegas

7.4 MSF of net absorption in 2017 was the most on record.  

Southern Nevada is coming off of a record year in 2017, and looks to produce similar numbers in 2018. The driver is the large warehouse/distribution buildings that are booming due to e-commerce and the race for almost instant delivery of goods bought online. While this development will continue in 2018, we also see the beginning of increased development in other industrial sectors due to organic growth in the local economy tied to construction on and around the Las Vegas strip.” Paul Sweetland, SIOR, Senior Vice President

Las Vegas Key Statistics

  Inventory Overall Vacancy Rate Overall Net Absorption New Supply (Construction) Under Construction Asking Rental Rate (PSF/YR)
2007
109,400,811 5.6% 4,105,4046,482,6543,128,101$9.36
2008
113,880,846 9.5% -181,573 4,480,0351,109,988$9.12
2009
115,853,003 13.4% -2,722,238 1,972,157370,608$7.32
2010
116,220,102 14.3% -775,274 367,09972,000$6.36
2011
116,448,256 13.7% 860,777228,154-$6.12
2012
116,448,256 13.5% 318,890-658,320$5.88
2013
117,262,204 10.8% 3,817,761813,948610,147$6.24
2014
118,313,028 8.2% 3,961,4631,050,824862,161$6.72
2015
120,213,629 5.6% 4,949,7101,900,6012,224,326$7.56
2016
123,582,666 5.4% 3,416,8673,369,0374,472,122$8.04
2017
129,911,396 4.3% 7,352,1916,328,7302,906,903$8.16
 

Key Statistics by Property Size

  Overall Vacancy Rate 2016 Overall Vacancy Rate 2017 Asking Rental Rate 2016 Asking Rental Rate 2017
10,000-24,999 SF
4.8% 3.8% $8.76$8.52
25,000-49,999 SF
4.9% 3.9% $8.88$9.60
50,000-74,999 SF
5.8% 5.4% $8.64$9.54
75,000-99,999 SF
4.1% 4.9% $9.12$8.28
100,000-249,999 SF
5.8% 6.6% $7.32$7.32
250,000-499,999 SF
4.1% 3.5% $6.60$7.27
500,000 SF +
0.1% 1.0% $8.16$8.28
Key Strengths:

The Las Vegas industrial market posted some of the strongest fundamentals in the country in 2017. Demand is driven by both regional distributors that are picking the region over other areas in Southern California and local businesses that are expanding because of the area’s growing economy and population. Las Vegas’ close proximity to California means that over 26 million people live within 250 miles of the market, over 22% of which are millennial.  

Logistics Driver:

Las Vegas offers a plethora of logistics advantages from the road, rail, air and even the sea. The market is relatively close to the ports of Los Angeles and Long Beach, the two largest ports in the United States. Interstate 15 passes through Las Vegas, and Interstate 40 is nearby, giving the market close proximity to two major interstate highways. The market is serviced by the Union Pacific Railroad and the McCarran International Airport is one of the fastest growing cargo airports in the country, growing over 15% in 2016.

Vacancy:

Las Vegas’ biggest year for activity on record dropped the overall vacancy rate to 4.3% at year-end, the lowest vacancy rate in over a decade and much lower than the recession-high vacancy rate of 14.3% in 2010. The market’s lowest vacancy rate was in the East Las Vegas submarket (2.3%) followed by West Central (3%) and Henderson (4%). The Valley’s highest vacancy rate was in the Northwest submarket at 7.1%. Look for vacancy rates to remain low in the coming year as occupiers continue to move into and expand in the market in droves in 2018.

Absorption:

Activity skyrocketed in 2017 as many large tenants took advantage of the market’s growing population, economic rental rates and significant logistics advantages. Over 7.4 million square feet was absorbed in 2017, the most for the market on record. Las Vegas also finished 2017 as one of the top growth markets (absorption as a percent of inventory) in the markets with net absorption equaling 5.7% of total inventory. The industries most active in occupying industrial space in 2017 were in the wholesale, transportation and warehousing, manufacturing and retail sectors; these sectors will continue to drive demand in 2018 as they all expand their footprints in the market.

Development:

At the beginning of 2017 the large amount of product slated to deliver in Las Vegas was worrisome as demand had not yet reached those levels. However, with record-breaking activity the large amount of product constructed ended up warranted. There were 6.3 million square feet of completed construction in 2017, the most since 2007. Despite the large amount of activity, ground breakings decreased the second half of 2017 with only 3 million square feet under construction at year-end. Despite a temporary dip in development, ground breakings are expected to pick up meaning another year of strong development projected in the coming year.

Asking Rents:

Asking rents continued an upward trajectory, finishing 2017 at $8.16 per square foot per year NNN, 1.4% higher than the previous year. With vacancy rates expected to remain low, asking rental rates will continue to ascend in the coming year. Low vacancy rates, rising asking rents and strong activity mean investment activity in the market will remain robust with higher sales prices and lower cap rates in 2018.

LeHigh Valley

62 million people live within 250 miles of the market.

“The Lehigh Valley market fundamentals are very strong thanks to many logistics advantages and close proximity to a large population. Most demand in the valley comes from food distribution, retail supply chain and e-commerce fulfillment, although access to labor is now a concern and is influencing final decisions. Supply is available with developers building spec space in every size category from 20,000 to 1,000,000 square feet in the region. Zoned land is being taken up quickly however, with most available sites now available further west in Berks County.” Steve Cooper, Senior Managing Director

Lehigh Valley Key Statistics

  Inventory Overall Vacancy Rate Overall Net Absorption New Supply (Construction) Under Construction Asking Rental Rate (PSF/YR)
2007
54,969,433 9.0% 1,208,8932,433,7671,840,920$4.91
2008
58,821,433 14.7% 159,3893,852,0001,707,696$4.78
2009
59,949,129 12.4% 2,318,5971,127,696 713,683 $4.25
2010
60,662,812 10.2% 1,983,766713,683-$4.22
2011
61,086,312 7.6% 1,977,259423,5001,709,473$4.45
2012
62,930,785 9.9% 238,3041,844,4731,533,480$4.45
2013
64,759,676 7.4% 3,282,7051,828,891695,678$4.56
2014
68,312,556 4.3% 5,395,8603,552,8801,635,034$4.64
2015
72,114,936 4.9% 3,225,1704,202,3804,215,000$5.13
2016
79,786,191 4.0% 7,988,4747,671,2552,956,928$5.90
2017
85,179,271 5.3% 4,086,8735,393,0802,640,868$6.23
 

Key Statistics by Property Size

  Overall Vacancy Rate 2016 Overall Vacancy Rate 2017 Asking Rental Rate 2016 Asking Rental Rate 2017
20,000-24,999 SF
- 9.4% - $7.00
25,000-49,999 SF
5.8% 6.2% $8.56$8.52
50,000-74,999 SF
4.6% 7.7% $6.46$6.68
75,000-99,999 SF
1.9% 4.9% $4.76$4.78
100,000-249,999 SF
1.2% 4.3% $5.15$5.51
250,000-499,999 SF
8.8% 7.6% $4.41$5.32
500,000 SF +
2.9% 6.5% $4.75$5.50
Key Strengths:

Distributors, manufacturers and 3PLs continue to move into the Lehigh Valley to take advantage of logistics benefits and opportunities. Lehigh Valley is located in Northeast Pennsylvania where underdeveloped farm land and factories once stood. The Lehigh Valley consists of a group of ever-expanding communities including Allentown, Bethlehem, Nazareth and Easton. Lehigh Valley’s location gives the regions occupiers quick access to some of the largest cities in the U.S. In fact, nearly 62 million people live within 250 miles of the market’s core, 21% of which are millennial.

Logistics Driver:

Lehigh Valley’s location gives occupiers close proximity to many logistics hubs. Nearby Philadelphia International Airport is one of the 20 largest cargo airports in the country. The region is also home to the Lehigh Valley International Airport, which was ranked the fastest-growing cargo airport in the U.S. in 2016. The Lehigh Valley offers access to the many major roadways including the Pennsylvania Turnpike, Interstate 78 and close access to the New Jersey Turnpike Aside from the road; there is also proximity to the ports in New Jersey, New York, Philadelphia and Wilmington.

Vacancy:

Continued large amounts of development increased vacancy rates to 5.3% in 2017. While vacancy rates increased they still remain relatively low when compared to the recession-high vacancy rate of 14.7% in 2008. Vacancy rates bumped up in all size ranges in 2017, but remained in single digits across all ranges, a sign the market is not over building in any particular size category. Despite another year of large deliveries expected in 2018, the continued demand in the market will keep vacancy rates low for the foreseeable future.

Absorption:

Many large retailers, wholesalers and 3PLs continue to make Lehigh Valley their home. In 2017 the market posted just over 4 million square feet of occupancy gains, the fifth consecutive year overall net absorption surpassed positive 3 million square feet. Since 2013, the market has posted 24 million square feet of positive absorption, equal to 28% of the total market inventory. As occupiers continue to expand their footprint because of a growing economy and the surge in e-commerce sales, Lehigh Valley will continue to be a sought-after market, keeping activity robust and absorption positive in 2018.

Development:

The growing demand from e-commerce occupiers to be in the Lehigh Valley to service the large nearby population has kept development robust the past five years. In 2017, over 5.3 million square feet was completed; while this didn’t match the record development in 2016, it was still an impressive number. Since 2013, nearly 23 million square feet of industrial development has been completed, meaning one-quarter of the existing inventory in the Lehigh Valley market is five years old or newer. Because the plethora of new development the past five years, land sites are becoming harder to find, evidenced by under construction product dropping to only 2.6 million square feet at year-end.

Asking Rents:

Asking rental rates continue to increase in the region because of strong demand and the fact that a large percent of available product comes from new class A inventory which carries a higher asking rate. Asking rental rates finished 2017 at $6.23 per square foot per year NNN, its highest rate in over a decade. With new development expected to decline, vacancies will also decline in the coming year, pushing asking rental rates up further in 2018.

Memphis

Memphis International Airport ranked #1 in the U.S. for air cargo freight.

“Due to tremendous access to rail, road and air logistics, the Memphis industrial market has seen an incredible amount of activity and development over the past six to twelve months. Due to the demand, the limited availability of existing bulk inventory and the approximate 5.5 million square feet of space sought by active prospects, developers are already planning a significant amount of new development in 2018. Current active developers include Johnson Development, Core5, Hillwood, IDI Gazeley and Panattoni. Even with the demand for Class A space, land prices and rental rates are still some of the lowest in the country.” Andy Cates, SIOR, CEO & President of Brokerage Services | Memphis

Memphis Key Statistics

  Inventory Overall Vacancy Rate Overall Net Absorption New Supply (Construction) Under Construction Asking Rental Rate (PSF/YR)
2007
209,113,931 11.5% 3,993,3863,301,6241,966,686$2.57
2008
212,596,014 11.4% 3,190,5702,799,608852,743$2.63
2009
212,809,770 11.8% -650,886 157,000400,000$2.55
2010
213,241,973 11.7% 621,979432,20372,000$2.45
2011
215,016,342 11.5% 1,911,8431,260,734234,600$2.43
2012
216,455,878 11.6% 1,199,2441,892,9521,219,892$2.53
2013
220,214,991 10.9% 4,833,1863,192,0981,471,232$2.55
2014
223,733,287 11.1% 2,654,3942,622,0322,204,040$2.66
2015
226,284,853 8.1% 9,178,1762,758,9321,781,513$2.79
2016
228,877,113 6.7% 5,499,1733,940,0532,988,796$2.92
2017
232,639,044 5.8% 5,494,7373,167,5315,331,404$3.00
 

Key Statistics by Property Size

  Overall Vacancy Rate 2016 Overall Vacancy Rate 2017 Asking Rental Rate 2016 Asking Rental Rate 2017
10,000-24,999 SF
2.5% 3.3% $5.80$5.69
25,000-49,999 SF
6.9% 6.6% $4.66$4.07
50,000-74,999 SF
10.2% 8.5% $2.59$2.38
75,000-99,999 SF
7.9% 7.5% $2.89$2.44
100,000-249,999 SF
10.0% 8.4% $2.72$2.69
250,000-499,999 SF
6.2% 7.6% $2.30$3.32
500,000 SF +
4.5% 2.8% $2.94$3.09
Key Strengths:

Memphis is an international distribution hub and global supply chain center with a transportation infrastructure that is second to none. Memphis’ logistics advantages contributes to its growth as a regional industrial hub, and its growing population is increasing demand for last-mile product. Over 17 million people live within 250 miles of the market’s core and over 21% of Memphis’ population within 50 miles of the core are millennials.

Logistics Driver:

Memphis is served by five Class One railroads, 490 trucking terminals, the nation’s fourth largest inland water port, 11 highways and the country’s largest cargo airport. The International Port of Memphis is the second largest inland port on the shallow draft portion of the Mississippi River and the fifth largest inland port in the United States. The port is key to feeding product to Memphis’ large rail network. In fact, Memphis is the third largest rail center in the U.S. behind Chicago and St. Louis and home to nine fully operational rail yards with a total current container capacity of more than 2 million annual lifts.

Vacancy:

Vacancy rates declined significantly in 2017 despite robust new construction. The overall vacancy rate finished the year at 5.8%, 0.9 percentage points lower than 2016 and significantly lower than the recession high vacancy rate of 11.8% in 2009. Activity is expected to remain strong in the coming year, which will keep vacancy rates low despite a projected increase in new development.

Absorption:

Occupancy gains remained strong in 2017 at 5.5 million square feet, nearly identical to the 2016 total. This marks the third consecutive year positive net absorption has surpassed 5 million square feet and the eighth consecutive year net absorption was positive. Large retail, wholesale and 3PL companies looking to take advantage of the market’s logistics capabilities have been and will continue to be the top occupiers in the region in the coming year.

Development:

The growing demand from regional occupiers to move into or expand within the Memphis market kept new development robust in 2017. With over 3 million square feet of industrial product completed, this is the sixth consecutive year new construction surpassed 1 million square feet. The continued large number of tenants looking for new industrial space significantly increased new development towards the end of 2017 with over 5.3 million square feet now under construction, the most in over a decade.

Asking Rents:

Asking rental rates continue to increase but remain one of the most economical in the country finishing 2017 at $3.00 per square foot per year NNN, by far the lowest of the markets highlighted in this report. The growth in asking rental rates was concentrated on the over 250,000-square-foot size range in 2017, which increased by over 22%. Despite higher asking rents, the market has a long way to go to catch up to asking rates in other regional distribution hubs. This will continue to draw occupiers to the market for the foreseeable future.  

Phoenix

9.2 MSF of net absorption is the most for the market in over a decade.

“The momentum that built in the Greater Phoenix industrial market the past few years is forecast to carry over into 2018. Demand is robust in the valley because of the area’s many logistics advantages, a strong economy and a growing population. Net absorption has been quite strong for the past several years, and hit an all-time record in 2017. This robust tenant demand is fueling new development. With vacancy at a 10-year low, spec and build-to-suit projects continue to work their way through the development pipeline.” Bob Mulhern, Senior Managing Director | Greater Phoenix

Phoenix Key Statistics

  Inventory Overall Vacancy Rate Overall Net Absorption New Supply (Construction) Under Construction Asking Rental Rate (PSF/YR)
2007
245,435,274 9.1% 6,748,24911,563,2788,979,225$7.75
2008
257,239,951 13.6% -901,521 11,774,0043,466,868$7.31
2009
260,855,248 16.6% -4,706,045 3,615,2971,418,684$6.15
2010
262,695,143 15.3% 5,130,4611,839,895420,737$5.68
2011
263,506,105 12.9% 6,908,821810,9621,930,348$5.58
2012
266,466,547 11.6% 6,125,7242,960,4423,594,594$5.79
2013
272,308,062 12.0% 4,087,4795,841,5153,196,772$5.95
2014
277,227,980 10.6% 8,177,8424,919,9184,337,553$5.95
2015
282,614,939 9.7% 7,342,1594,386,9593,589,391$6.27
2016
288,172,827 9.4% 5,858,3285,557,8885,542,530$6.67
2017
293,811,646 8.0% 9,240,8955,638,8193,462,943$6.82
 

Key Statistics by Property Size

  Overall Vacancy Rate 2016 Overall Vacancy Rate 2017 Asking Rental Rate 2016 Asking Rental Rate 2017
10,000-24,999 SF
5.0% 5.1% $8.61$9.15
25,000-49,999 SF
7.2% 6.4% $7.68$7.94
50,000-74,999 SF
8.3% 6.7% $8.19$7.79
75,000-99,999 SF
14.2% 11.5% $8.38$8.62
100,000-249,999 SF
11.7% 9.5% $6.47$6.77
250,000-499,999 SF
16.5% 12.6% $5.22$5.71
500,000 SF +
8.0% 6.7% $4.14$4.46
Key Strengths:

The Phoenix industrial market continues to post exceptional growth because of its proximity to a growing population, a strong workforce base, an expanded and modernized highway system and more attractive rental rates compared to markets in Southern California. Nearly five million people live in the metro Phoenix area, the 12th highest in the U.S., and this number is expected to grow over 8% in the next five years according the U.S. Census Bureau.

Logistics Driver:

Phoenix recently expanded its local interstate system, and its location along Interstate 10 gives the market a significant logistical advantage in reaching the Southwest populace. The Phoenix Sky Harbor International Airport is a burgeoning air cargo hub utilized by both FedEx and UPS that ranked 18th in the country in total cargo in 2016.

Vacancy:

The Greater Phoenix market was one of the hardest hit by the subprime mortgage collapse and subsequent recession with overall vacancy rates topping out at 16.6% in 2009. Vacancies have declined every year since thanks to strong activity and finished 2017 at 8%, 1.4 percentage points lower than the previous year and the lowest overall vacancy rate in over a decade.

Absorption:

Activity skyrocketed in 2017 as many large tenants took advantage of the market’s growing population, economic rental rates and significant logistics advantages. The region is competing and winning against other southwest U.S. markets for large tenants including Huhtamaki North America and Chewy.com which selected the region to occupy large industrial facilities in 2017. These deals, along with a plethora of other transactions, created over 9.2 million square feet of net absorption in 2017, the most in over a decade.

Development:

While the pace of post-recession development peaked in 2013, a robust 5.6 million square feet were completed in 2017. Despite a significant amount of activity, under construction product dropped in the region to 3.4 million square feet at year-end, the lowest since 2013. Because of this drop in available product from new development, vacancies will continue to decline in the coming year.  

Asking Rents:

Asking rents have trended higher over the past five years, with annual growth averaging more than 3% over that time period. In 2017, asking rents rose over 2% compared with the previous year finishing at $6.82 NNN. With vacancies projected to further decline in 2018, asking rents will continue to increase making the market even more attractive to institutional investment in the coming year.

South Florida

9.8% population growth projected over the next five years.

“The South Florida industrial market has emerged as a national industrial powerhouse. The market is fueled by shifting consumer trends, the growth of e-commerce, a rapidly growing population and a strong economy. Furthermore, the strengths that stem from South Florida’s strategic location as a gateway to Latin America and the Caribbean are significant for fueling international trade growth and have led the region to invest heavily in its logistics infrastructure. These drivers, in addition to high barriers to entry and dwindling land supply, have kept vacancy rates low and driven asking rates to record highs making the region a popular option for institutional owners to invest in.” Ken Krasnow, Executive Managing Director | South Florida Region

South Florida Key Statistics

  Inventory Overall Vacancy Rate Overall Net Absorption New Supply (Construction) Under Construction Asking Rental Rate (PSF/YR)
2007
364,394,036 5.8% -1,522,093 5,807,4934,177,389$8.56
2008
369,204,795 8.1% -4,062,507 5,240,6183,165,251$8.39
2009
371,726,097 10.6% -6,845,410 2,924,760841,777$7.76
2010
372,470,323 9.3% 5,506,5201,022,224658,688$7.38
2011
372,573,211 8.5% 3,070,459719,1351,132,271$7.12
2012
372,728,502 7.7% 3,296,8161,126,2631,581,473$6.93
2013
374,699,797 6.9% 4,730,0792,606,6553,368,596$7.25
2014
377,665,627 6.1% 5,687,6313,269,3532,899,308$7.91
2015
380,832,960 5.0% 7,032,6154,022,2452,705,308$8.54
2016
383,779,064 3.9% 7,101,6883,603,8196,896,755$9.22
2017
388,050,782 4.0% 3,927,0284,553,0486,756,198$9.40
 

Key Statistics by Property Size

  Overall Vacancy Rate 2016 Overall Vacancy Rate 2017 Asking Rental Rate 2016 Asking Rental Rate 2017
10,000-24,999 SF
2.3% 1.9% $8.00$8.75
25,000-49,999 SF
3.8% 3.3% $7.00$8.00
50,000-74,999 SF
3.7% 3.8% $6.75$7.50
75,000-99,999 SF
5.0% 4.3% $6.50$7.25
100,000-249,999 SF
5.9% 5.4% $6.50$7.25
250,000-499,999 SF
3.7% 10.0% - -
500,000 SF +
2.1% 2.1% - -
Key Strengths:

The South Florida industrial marketwhich encompasses Miami-Dade County, Broward County and Palm Beach Countyhas experienced significant post-recession growth because of its strong logistics advantages and burgeoning population. Nearly 17 million people live within 250 miles of the market’s core and this is expected to grow by an impressive 9.8% over the next five years. These drivers make South Florida an excellent choice for both regional and last-mile distribution.

Logistics Driver:

South Florida boasts multiple logistics advantages across sea, air and land. One such advantage is Port Everglades, which is located on the southeast coast of the Florida peninsula. Port Everglades is one of the most active containerized cargo ports in the U.S. and serves as South Florida’s main seaport for petroleum products. Miami International Airport (MIA) is also a major demand driver for the South Florida industrial market. MIA is a major global freight hub, handling 83% of all air imports and 79% of all air exports from Latin America.

Vacancy:

After peaking at nearly 11% in 2009, vacancies have been on a downward trajectory, before stabilizing in 2016. In 2017, vacancies increased slightly but remained extremely low at 4%, only 0.1 percentage point higher than the previous year. Vacancies are low across all size ranges but remain lowest in the 10,000 square feet to 24,999 square feet size range and over 500,000 square feet size range. Despite a continued large amount of new development projected in 2018, vacancies will remain in the 4% range as many occupiers will continue to move into or expand with the market.

Absorption:

Continued low vacancy rates effected net absorption in 2017. Nearly 4 million square feet were absorbed for the year, which is about half of the 2016 total. While absorption dropped because of a lack of available product to occupy, the market remained strong evidenced by the eighth consecutive year of occupancy gains. Demand for industrial product is driven by retailers and wholesalers occupying last-mile distribution centers in the region. This is pushing demand further east, closer to Interstate 95 in Broward and Palm Beach counties, and east of Miami International Airport in Miami-Dade County. As the population continues to grow in Palm Beach County, the homebuilding industry has expanded and occupied a significant amount of space in the area.

Development:

At year-end, construction completions reached nearly 4.6 million square feet, the highest amount of development since 2018. New development was strongest in Miami-Dade County in 2017, with 2.7 million square feet of construction completions, and that will continue in 2018 with Miami-Dade currently posting 2.4 million square feet of under construction product. Overall, 6.8 million square feet is under construction in South Florida, and this new product will provide needed inventory to quench some of the increasing demand the region is expected to warrant in the coming year. 

Asking Rents:

Asking rates have risen steadily since 2009, and finished 2017 at a decade high of $9.40 per square foot per year NNN. Increased rental rates along with low vacancy rates have made South Florida one of the most popular markets in the U.S. with institutional developers in 2017 with companies including Prologis, Clarion, Prudential Principal and TIAA-CREF creating or expanding footprints in the market.

St. Louis

Six Class One railroads service the St. Louis metropolitan area.

“This is a great time to be an industrial real estate developer in St. Louis. The market’s central location and strong rail network are contributing to strong leasing activity and net absorption and this will continue into 2018. This is true in both tax abated and non-tax abated areas. Developers are continuing to build new spec product and pursue land for development to satisfy this continuing absorption.” Geoffrey Orf, SIOR, Senior Vice President | St. Louis

St. Louis Key Statistics

  Inventory Overall Vacancy Rate Overall Net Absorption New Supply (Construction) Under Construction Asking Rental Rate (PSF/YR)
2007
247,202,427 6.7% 1,578,4972,801,9511,994,442$4.60
2008
250,084,758 6.8% 939,914 2,142,805 1,086,373$4.09
2009
224,666,833 8.5% -373,935 763,358 - $4.19
2010
224,450,018 10.4% -16,553 144,558 227,000 $3.78
2011
223,186,034 9.8% 394,301 28,800 227,000 $3.89
2012
222,732,503 9.3% 1,092,684 - - $3.75
2013
222,967,511 8.4% 1,491,167 521,718 227,500 $3.59
2014
224,733,312 6.5% 4,243,321 408,500 1,462,923 $3.60
2015
226,219,399 6.4% 2,513,162 2,219,618 3,299,148 $3.75
2016
232,594,801 6.9% 4,416,204 6,356,903 3,149,303 $4.49
2017
235,722,932 6.8% 3,914,229 4,005,682 2,308,440 $4.46
 

Key Statistics by Property Size

  Overall Vacancy Rate 2016 Overall Vacancy Rate 2017 Asking Rental Rate 2016 Asking Rental Rate 2017
10,000-24,999 SF
2.3% 2.3% $6.04$6.43
25,000-49,999 SF
2.9% 3.1% $6.27$5.83
50,000-74,999 SF
2.5% 2.9% $4.40$4.82
75,000-99,999 SF
5.5% 6.7% $3.94$4.05
100,000-249,999 SF
6.8% 5.8% $4.23$4.34
250,000-499,999 SF
8.4% 6.7% $3.45$3.98
500,000 SF +
5.6% 7.4% $3.19$3.54
Key Strengths:

The St. Louis market epitomizes the growth in secondary industrial markets the past few years because of e-commerce. The market is centrally located and is home to one of the biggest freight rail networks in the country. Because of this, the market has seen many e-commerce-related companies take large blocks of space. As the need to get products to consumers increases in the coming years, St. Louis is one of the best situated industrial markets to take advantage.

Logistics Driver:

The Port of Metropolitan St. Louis (PMSL) encompasses 70 miles and includes both sides of the Mississippi River. The port is the northernmost ice- and lock-free port on the Mississippi and is served by six Class One railroads, seven interstate highways and two international airports. Over one third of the U.S. population is located within 500 miles of the port. In addition to the port of St. Louis, the St. Louis Lambert International Airport is a growing cargo hub, with total cargo volumes increasing 8.3% year-over-year in 2016.

Vacancy:

Vacancy rates remained low in 2017 despite robust new construction. The overall vacancy rate finished 2017 at 6.8%, a 0.1 percentage point decline compared with 2016 and significantly lower than the recession-high vacancy rate of 10.4% in 2010. Activity is expected to remain strong in the coming year; this, combined with a projected slight decline in new development, will keep vacancy rates low for the foreseeable future.

Absorption:

Many large occupiers chose to locate to the St. Louis industrial market in 2017 including Amazon, Best Buy and Geodis. These large move-ins contributed to nearly 4 million square feet of occupancy gains in 2017, the seventh consecutive year absorption was positive in the region. Expect demand to remain on par with 2017 in the coming year across all sizes as occupiers continue to take advantage of the market’s robust logistics offerings.

Development:

With the growing demand from e-commerce occupiers comes an increased demand for new development. In 2017 over 4 million square feet of industrial product were completed, the second most product delivered the past 10 years. Despite continued strong demand, land sites are becoming harder to find, evidenced by under-construction product declining at year-end to only 2.3 million square feet. As new development declines, look for vacancy rates to also drop in the coming year.

Asking Rents:

Asking rental rates are stable in the region, finishing 2017 at $4.46 per square foot per year NNN, on par with the previous year. Despite a plateau in the overall asking rent, many size ranges experienced rent growth in 2017, including product over 250,000 square feet and under 25,000 square feet. As vacancies are projected to decrease in the coming year, asking rents should increase and this combination of factors will bring more interest from institutional capital, increasing sales prices and lowering cap rates in the market.  

Stockton

Asking rental rates increased 13% compared with the previous year.

“The Stockton-San Joaquin County market has emerged from the Great Recession as a leader in the development of Class A, institutional-quality logistics and distribution facilities. Institutional developers, attracted by the ease of access to the regional infrastructure and developable land, shifted attention east of the Bay Area to the Central Valley as demand supported development for a region facing historically all-time low vacancy rates and rising rents. State-of-the-art spec and build-to-suit development has thrived, attracting many Fortune 500 companies. San Joaquin County benefits from many logistical advantages that connect the market with the surrounding region.” Michael Goldstein, Executive Managing Director | Central Valley

Stockton Key Statistics

  Inventory Overall Vacancy Rate Overall Net Absorption New Supply (Construction) Under Construction Asking Rental Rate (PSF/YR)
2007
84,442,571 11.5% 182,7692,860,8473,148,801$5.16
2008
89,629,665 12.2% 4,267,9975,392,2632,440,732$5.40
2009
92,233,403 17.3% -2,486,973 2,403,983-$4.92
2010
92,563,472 17.8% -1,283,141 16,000-$4.32
2011
92,774,988 15.1% 2,514,62784,466-$4.44
2012
94,049,012 13.2% 1,435,52129,0951,017,353$4.68
2013
95,615,825 11.5% 2,433,5261,547,3531,839,910$4.32
2014
97,515,885 8.3% 4,852,0421,900,0602,167,055$4.20
2015
98,997,556 8.0% 1,619,6661,481,6712,366,633$4.68
2016
102,017,749 6.0% 4,867,0083,020,1933,865,347$5.52
2017
105,883,721 4.8% 4,864,3863,865,9727,653,996$6.24
 

Key Statistics by Property Size

  Overall Vacancy Rate 2016 Overall Vacancy Rate 2017 Asking Rental Rate 2016 Asking Rental Rate 2017
10,000-24,999 SF
5.4% 3.0%$6.24$5.88
25,000-49,999 SF
3.9% 2.7%$6.24$5.04
50,000-74,999 SF
6.6% 2.4%$4.20$5.64
75,000-99,999 SF
1.8% 5.3%$3.96$3.84
100,000-249,999 SF
3.7% 4.1%$3.96$5.04
250,000-499,999 SF
2.3% 4.7%$3.96$5.04
500,000 SF +
----
Key Strengths:

The Stockton-San Joaquin County industrial market is one of the fastest growing in the region with robust activity, low vacancies and a plethora of new development. The market has the advantage of being near the young tech populations in the Bay Area and Silicon Valley. In fact, nearly 4 million millennials live within 250 miles of the market’s core. The region’s projected population growth combined with a significant amount of logistics options will keep the industrial market booming for the foreseeable future.

Logistics Driver:

Stockton-San Joaquin County offers a large assortment of logistics options. The market is near the San Francisco International Airport and Oakland Metropolitan airport, which both ranked in the top 20 for air cargo in 2016. The top logistics driver in the market is the Port of Stockton. The port is the largest inland port in the western U.S. and third largest port in California. The port is situated at the hub of four major freeways, two transcontinental railroads (Union Pacific and BNSF) and an international waterway.

Vacancy:

Despite a large amount of new development, the overall vacancy rate declined significantly in 2017 to 4.8%, 120 basis points lower than the previous year, and significantly lower than the recession high vacancy rate of 17.8% in 2010. Despite a large amount of new product coming on line in the coming year, vacancy rates will remain low in the region for the foreseeable future.

Absorption:

Activity remains strong across all industries evidenced by large deals signed by JM Smucker, Exel Inc and XPO Logistics in 2017. The large amount of transactions contributed to over 4.8 million square feet of overall net absorption in 2017, equal to 4.6% of the markets total inventory. This made the Stockton-San Joaquin County industrial market one of the top growth markets in the U.S. for the year. Leasing activity in buildings currently under construction are strong, meaning net absorption will stay robust and keep vacancies low in the coming year. 

Development:

Development remains strong in the region due to large amounts of available land in the region. Nearly 4 million square feet of industrial product was completed in 2017, bringing the post-recession total to just under 12 million square feet, which equals 11% of the total inventory in the market. New development looks to explode in the coming year with over 7.6 million square feet currently under construction. With activity strong in this product, combined with growing demand from tenants looking to move into the region, new development will be robust for the foreseeable future.

Asking Rents:

Asking rates, which have increased steadily since 2014, skyrocketed in 2017 to $6.24 per square foot per year NNN, an increase of over 13% compared with the previous year. Asking rents increased the most in product over 100,000 square feet, jumping 27% compared with the same time a year ago. Robust demand will keep rental growth strong for the foreseeable future and will increase institutional investor interest in the region going forward.

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