Emerging Markets: Industrial Real Estate Is Booming, And These 10 Markets Stand To Benefit
The demand for industrial real estate is accelerating rapidly, and several emerging markets are benefiting.
“Industrial has been probably the hottest sector in real estate the last 18 to 24 months and as we all know it’s because of the e-commerce drive and ‘need it now’ environment,” Colliers International president of brokerage services Dwight Hotchkiss said.
Companies looking to balance rising distribution costs with proximity to customers are turning to secondary markets near ports and large population centers to build modern facilities. In determining which 10 markets will see the greatest boost in industrial investment and development this year, Colliers took several factors into account, including the markets’ proximity to major logistics hubs, available land for development, comparable economic rental rates and surrounding amenities.
Major core industrial markets (Inland Empire, Chicago, New Jersey, Dallas and Atlanta) will still experience strong demand in the coming year, Hotchkiss said, but some markets are rising as competitors.
Below are 10 emerging markets likely to see a boost in industrial investment this year, according to Colliers International's Q4 data.
1. Columbus, Ohio
Vacancy Rates: 5.4%
Absorption: 8.7M SF
Asking Rents: $3.36/SF
Large amounts of available land and proximity to the Rickenbacker Inland Port are driving retailers and logistics providers to this market. Last year, Columbus experienced record levels of industrial absorption — nearing levels reached by core markets. There's been 26M SF of absorption here since 2010. Amazon recently finished developing two fulfillment centers totaling 1.9M SF in two of Columbus’ submarkets.
2. Denver
Vacancy Rates: 4.6%
Absorption: 2.5M SF
Asking Rents: $7.95/SF
Real estate players have been betting on the Denver market as a transportation and logistics hub. Last year the Rocky Mountain region had 3.6M SF of industrial space under construction, the largest pipeline in 10 years — and most of it was pre-leased.
3. Greater Phoenix
Vacancy Rates: 10.2%
Absorption: 4M SF
Asking Rents: $6.65/SF
The Greater Phoenix area ranked No. 6 in the U.S. for new supply delivered in 2016, as 5M SF of industrial space came online. 6.5M SF is planned for this year. A growing population in the Southwest and a robust labor market are driving companies here to be close to customers. Net absorption remains strong in the market, and vacancy rates dropped to 10.2%, the lowest level since 2007.
4. Greenville-Spartanburg-Anderson, S.C.
Vacancy Rates: 6.9%
Absorption: 7.7M SF
Asking Rents: $3.28/SF
Users increasingly flock to the Greenville-Spartanburg-Anderson market for the available land and proximity to the ports of Charleston and Savannah. The market was No. 6 in overall net absorption last year, ending 2016 with 7.7M SF absorbed — that’s double the record it set in 2007.
5. Indianapolis
Vacancy Rates: 5.4%
Absorption: 9.9M SF
Asking Rents: $3.84/SF
This market has seen more than 20M SF of industrial space developed in the last four years, and robust demand continues to absorb supply. Vacancy rates dropped to 5.4% last year from 2015’s 8%. Last year Indianapolis ranked as one of the top 10 markets in the U.S. for overall net absorption.
6. Kansas City, Kansas
Vacancy Rates: 6.9%
Absorption: 6.1M SF
Asking Rents: $4.52/SF
Last year, e-commerce behemoth Amazon.com invested heavily in Kansas City, inking three large deals just two years after entering the market. Construction completions reached 7.9M SF in KC last year, a new record.
7. Memphis
Vacancy Rates: 6.7%
Absorption: 5M SF
Asking Rents: $2.87/SF
Known as an international distribution hub and home to the International Port of Memphis, this market had the lowest asking rental rate in 2016 for a market with more than 100M SF. Memphis boasts 490 truck terminals and the world’s largest cargo airport, and it is the nation’s fourth-largest inland water port. Strong demand pushed vacancy rates to the lowest levels in a decade, and the 5M SF under construction is a record for the market.
8. Nashville
Vacancy Rates: 4.2%
Absorption: 4.35M SF
Asking Rents: $4.80/SF
Nashville is home to a lot of big names and international brands, such as Jack Daniel’s, FedEx and Gibson Guitar, and remains a magnet for big players in the logistics and advanced manufacturing industries. In 2016, Nashville hit its lowest vacancy rate in 10-plus years. Demand in this market has allowed landlords to raise rents to record highs, though asking rents remain cheaper than that of core gateway cities such as San Francisco, Chicago and New York.
9. Shenandoah Valley
Vacancy Rates: 6.6%
Absorption: 1.65M SF
Asking Rents: $4.37/SF
Available land and proximity to Washington, DC, is driving demand in this market, pushing absorption to 1.6M SF — the area's seventh consecutive year in the positive. Vacancy rates dropped to 6.6% in 2016, half of the 9.9% reported in 2009, and proximity to the Virginia Inland Port continues to be a key driver.
10. Tampa Bay
Vacancy Rates: 6.3%
Absorption: 6.2M SF
Asking Rents: $5.06/SF
Tampa Bay ranked No. 10 in overall net absorption in the U.S. last year, thanks to an exploding population and e-commerce drivers that led both Amazon and Walmart to open multimillion-square-foot facilities in the market. Vacancies dropped to 6.3% in 2016, though large amounts of available land are projected to lead to an increase in development activity this year.
