Industrial Continues to Hit on All Cylinders

by CoyDavidson on January 10, 2014

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North American Industrial Highlights

For the third consecutive year, Colliers International predicts that industrial real estate will be a star performer among commercial property types in 2014. While many have hopped aboard the industrial recovery train over the past 12–18 months, few had Colliers’ breadth of experience to see the industrial recovery germinating as far back as 2011. Even prior to the financial crisis, the industrial recovery began with high-tech manufacturers returning to the U.S. due to a lack of patent protection in many emerging markets that had lured manufacturers offshore with the promise of cheap labor. The ROI on that strategy disappeared if the emerging market became a direct competitor with a slightly modified product based on a supposedly proprietary process. The on-shoring trend accelerated during the financial crisis as the Federal Reserve’s extraordinary monetary policy intervention devalued the U.S. dollar and made it more attractive to manufacture in the U.S. And then came cheap energy from the “tight oil” production boom, and the drive to upgrade and re-engineer the supply chain due to the growth in e-commerce and coming expansion of the Panama Canal. With technology and robotics offsetting the need for cheap labor, the major cost concerns for manufacturers have shifted to energy and transportation. The U.S. has again become the most desirable place to manufacture.

Key Takeaways:

  • 2013 was a record year for intermodal traffic, surpassing the previous 2006 record of 12.3 million containers. AAR’s YTD U.S. intermodal rail volume was up 4.6% over 2012, to 12,831,692 containers. December’s average volume of 239,695 units per week was the highest for any December on record.
  • 2013 was a record year for intermodal traffic, surpassing the previous 2006 record of 12.3 million containers. AAR’s YTD U.S. intermodal rail volume was up 4.6% over 2012, to 12,831,692 containers. December’s average volume of 239,695 units per week was the highest for any December on record.
  • The “perfect game” goes into the 10th inning! After ten straight quarters of improvement, the fundamentals look right for a great Spring Training in 2014. Overall vacancy for North American industrial markets has fallen below 8 percent, and Q3 net absorption was the best thus far in 2013 (51.2 MSF for U.S. markets, vs. 47.4 MSF in Q1 and 42.0 MSF in Q2).
  • No signs of overbuilding risk. Although 21.1 MSF of new supply was added throughout North America in Q3 (16.7 MSF of that in the U.S.), only 11.1 MSF was speculative. Build-to-suit construction is behind the increasing warehouse supply, especially in the U.S., where 56 percent (9.3 MSF) of new supply is build-to-suit. Given that net absorption has averaged 50 MSF per quarter thus far in 2013 (twice new supply), overbuilding risk is not on the horizon.
  • Dominant port, inland distribution and air cargo markets continue to lead warehouse leasing. Among port markets, Los Angeles leads absorption in the U.S. (4.6 MSF), and Toronto leads Canadian markets (4.3 MSF). Leading inland distribution markets in Q3 were Dallas (4.2 MSF), LA – Inland Empire (3.6 MSF), Philadelphia (2.6 MSF), New Jersey – Central (2.3 MSF) and Denver (1.5 MSF). Air cargo markets Memphis (3.6 MSF) and Columbus, OH (1.7 MSF) were among the top ten.

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