This significant level of absorption is due to the expected return of housing construction.
A new report released by the NAIOP Research Foundation says that net demand for industrial space could reach 250 million square feet in 2014, surpassing the near-record level of 233 million square feet set in 2013. This significant level of absorption is due to the expected return of housing construction, which requires warehouse space for building materials, appliances and furniture; the continued expansion of e-commerce that shifts goods from retail stock rooms to fulfillment and distribution centers; and the improving economy expected to grow by more than 3%.
“Demand for all types of industrial space – warehouse, fulfillment/distribution center, manufacturing and flex – is robust,” said Thomas J. Bisacquino, president and CEO of NAIOP, the Commercial Real Estate Development Association. “An intense increase in e-commerce has steepened the demand for distribution and fulfillment centers, and companies are gobbling up space as a result.”
Study authors, Hany Guirguis and Joshua Harris, predict growth will most likely result from the construction and retail trade sectors. Increases in new housing starts, up 18% in 2013, will likely continue due to sustained population growth and lack of new housing currently available on the market. Falling unemployment rates and increased growth in the U.S. have enabled families to spend more, fueling gains in retail sales, which set another all-time high in December 2013. The combined forces of these two trends likely will result in continued growth in demand for warehousing and distribution facilities, specifically from the retail trade and housing construction sectors.
Report Highlights Include:
- 2013 industrial net absorption reached a near-record 233 million square feet.
- Fourth quarter 2013 industrial net absorption came in higher than expected at 70 million square feet.
- 2014 quarterly net absorption will range between 60 and 65 million square feet.
- 2015 quarterly net absorption figures will range between 61.5 and 75.2 million square feet, with a mean forecast of 68.8 million square feet.
- As consumers purchase items online versus in person at traditional stores, demand for distribution and fulfillment centers will increase.
“We see the return of housing as a significant part of the economy driving the need for industrial space, as building products and materials need to be warehoused and shipped across the nation to meet local demand. Further, each new housing unit will need to be furnished and will create demand for other household goods, which in turn fuels even more industrial space demand. These are long-term trends and thus partially explain the forecast of strong levels of industrial space absorption,” said Harris.
“While we are encouraged by this positive growth in industrial, it is important to recognize that the same demand isn’t being experienced across the industry,” said Bisacquino. “The commercial real estate industry as a whole has yet to reach its full potential, due to uncertainties about fiscal policy and an unsteady economy.”