JLL says logistics properties playing a role in industrial real estate market recovery

Even though many facets of the industrial real estate market are not close to a full recovery, one area in which appears to be growing are markets with strong logistics infrastructure that serve as distribution hubs to regions with large populations, according to a report issued by global real estate firm Jones Lang LaSalle (JLL).

By ·

Even though many facets of the industrial real estate market are not close to a full recovery, one area in which appears to be growing are markets with strong logistics infrastructure that serve as distribution hubs to regions with large populations, according to a report issued by global real estate firm Jones Lang LaSalle (JLL).

This observation coincides with the national average vacancy rate for the North American real estate sector remaining close to flat at 10.4 percent in the third quarter of 2010 compared to a 10.6 percent rate in the second quarter.

But even with vacancy rates remaining consistent, JLL observed that current economic conditions are still hindering industrial real estate market conditions, with expectations for overall activity likely to be slow.

“I would characterize the U.S. industrial real estate market as one of cautious optimism,” said Craig Meyer, SIOR, Managing Director and Leader of JLL’s Logistics and Industrial Services Group. “It looks like there will be positive absorption by the end of 2010 nationally, which is big as there has been negative absorption over the last three years.”

Net absorption in the third quarter of 2010 was at 9.3 million square feet, marking the second quarter of occupancy gains, according to JLL data.

In the report, JLL explained that there is a continued “flight to quality” but as the larger blocks of prime availabilities continue to be taken down, there is the potential for increased build-to-suit activity occurring in key logistics hub markets around the country.

These markets, noted JLL, are benefitting from higher demand from national and corporate industrial occupiers, with firms consolidating into new prime locations establishing new supply chain directives when costs are low or those companies are able to trade up with a well-timed lease event.

The result of this activity, said Meyer, is a slow but steady recovery in industrial markets led by Tier I—or large logistics hub—markets in various regions, including Southern California and its Inland Empire, Harrisburg and Lehigh Valley in Pennsylvania, and an improving market in Chicago.

“These are the large logistics and coastal markets that are driving the good news,” said Meyer. “The Inland Empire in particular has been really dependent upon the Port of Los Angeles, and inbound port traffic there is up significantly over a cyclical low.  And retailers have restocked in response to a recovering economy. We are not at a plateau, but we are not growing quite as fast as we were in the third quarter, but we are chugging along which in the long run is really good news.”

Despite the growth occurring in some regions, industrial rents dropped 1.2 percent in the third quarter for the tenth straight time since early 2008, and it is likely to continue across smaller, regional markets into 2011.

This reflects what Meyer described as a bottoming of rental costs nationally, with some increases—depending on the market—possible. And for occupiers of industrial properties, Meyer said the window is still open to secure space, with relatively low lease rates available compared to historical standards, due to the nature of the slow economic recovery, and is likely to be the case for a while contingent on the size of the building.

Direction of the recovery: While the initial economic recovery was driven by improvements in the manufacturing sector and a cyclical adjustment in inventories, it is now more broad-based, with a slowing inventory re-build in terms of its impact on the industrial property sector, according to Meyer.


About the Author

Jeff Berman, Group News Editor
Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman

Subscribe to Modern Materials Handling Magazine!

Subscribe today. It's FREE!
Find out what the world’s most innovative companies are doing to improve productivity in their plants and distribution centers.
Start your FREE subscription today!

Article Topics

Logistics · · All Topics
Latest Whitepaper
Peek Inside Trinchero’s New Automated Warehouse
When Trinchero Family Estates, one of the world's top wineries, consolidated its bottling and distribution with production, they knew they needed to ramp up speed and throughput. Partnering with Swisslog helped them achieve that goal—and more.
Download Today!
From the March 2017 Modern Materials Handling Online Issue
If the early attendee forecast is any indication, you may have already landed in Chicago for ProMat 2017 (April 3-6), the materials handling industry’s leading trade show and educational conference, sponsored by MHI.
Lawson Products: Automation that fits
Lawson’s multi-purpose distribution center
View More From this Issue
Subscribe to Our Email Newsletter
Sign up today to receive our FREE, weekly email newsletter!
Latest Webcast
2016 Warehouse/DC Operations Webcast: Confronting omni-channel complexity
During this webcast we’ll examine the current activities, trends, and best practices in warehouse and DC operations management and how companies plan to address complex issues associate with omni-channel fulfillment.
Register Today!
EDITORS' PICKS
2017 Productivity Achievement Awards
Modern’s annual Productivity Achievement Awards honor companies that have made exceptional...
Johnson & Johnson: A vision for automation
J&J Vision Care brings together a variety of automated technologies, including an innovative...

Using AGVs at LEDVANCE
The lighting manufacturer reaped savings by reducing maintenance costs and product damage, and using...
System Report: Sustainable Distribution at REI
Specialty outdoor retailer REI’s new distribution center brings together the next generation of...