JLL report: Strong Q1 for U.S. industrial real estate market

Data recently issued by Chicago-based industrial real estate firm JLL reinforced the ongoing impact of the COVID-19 pandemic on the industrial and logistics real estate sector.

In its “Q1 Industrial Outlook,” JLL Director of U.S. Industrial Research Mehtab Randhawa wrote that e-commerce continues to be a trending topic of discussion, with demand from this industry driving the bulk of industrial leasing, with the caveat that leasing volumes are starting to normalize following an anomaly year.

“New technology and demographics continue to transform retail and push consumer expectations to new levels,” she wrote. “As the online shopping experience takes shape, ecommerce penetration is expected to normalize and force traditional retailers to incorporate rapid replenishment operations to compete.”

Those observations were made clear in JLL’s U.S. findings, including:

a record-high 85.6 million square-feet (MSF) in net absorption;
total square footage, at 13,774,322,910, led by warehouse & distribution, at 10,264,568,662 MSF and manufacturing, at 3,472,442,507, and special purpose, at 37,311,741 MSF;
a total vacancy rate of 5.2%, with warehouse & distribution, at 6.0%, manufacturing, at 3.1%m and special purpose, at 2.0%;
total availability at 7.9%;
YTD net absorption at 85,652,236 MSF, paced by warehouse & distribution, at 81,314,603 MSF;
YTD construction deliveries art 67,205,371 MSF;
33,785,078 MSF under construction; and  
Q1 average rent at $6.57 per square-foot
These metrics reinforce JLL’s thesis that 2021 is “shaping up to be one of the strongest for the industrial silos, with net absorption near record highs, as evidenced by the first quarter’s 85.6 MSF representing the second-highest on record.

Kelsey Rogers, Senior Research Analyst, Industrial, JLL, explained that elevated net absorption levels are due to a combination of occupancy delays from 2020 leasing activity with tenants moving into their spaces this quarter, as well as Q1 2021 leasing activity.

“As stay-at-home orders were lifted across the United States, we began to see an increase in tenant touring activity and tenants started to occupy their new and expanded spaces,” said Rogers. “Additionally, development activity picked up and new deliveries came to fruition, allowing tenants to move into their spaces; thereby, adding to the positive net absorption totals this quarter.” 

Another key theme of the report showed how pent-up demand from tenants in the small- to mid-sized box range were industrial market driver in the first quarter, with more than 65% of leases signed in buildings under 50,000 SF.

When asked if continued traction is expected to continue for this segment going forward, Rogers said that is the case, as demand for last-mile facilities and Urban Logistics infrastructures start to rise.

“The limited land and space availability in urban settings for industrial tenants has the potential to push many to sign leases in smaller spaces to accommodate their consumers expectations,” Rogers noted.

JLL also reported that leasing from the e-commerce sector has recently started to level off, as logistics & distribution leasing has subsequently moved ahead. That was seen with more than 121.5 MSF of industrial space leased in the first quarter.

As for e-commerce, the firm said that while e-commerce was the top leasing industry in 2020, there is an increasing need for supply chain solutions fueling demand from within the logistics & distribution sector, with its first quarter tally coming in at 16.7 MSF of industrial space, or 13.9% of total U.S. volume. Other top leading sectors included e-commerce, 3PL, retail, and food & beverage.

“With congestion at major ports continuing to be a lingering strain on the supply chain as the economy pushes into the post-pandemic world, we anticipate demand from the logistics & distribution industry to continue to rise,” the report noted. “Looking forward, the influx of packages ordered through e-commerce will also push the need for new last mile facilities to handle the growth in the coming months.”

And Rogers observed that demand from the e-commerce industry has been on the rise in recent years; however, 2020 was an anomaly, given the change in consumer behavior in response to the pandemic.

“Going forward e-commerce leasing is anticipated to level off with activity hovering slightly above historical averages,” said Rogers.

Regarding the ongoing growth, or emergence of last-mile facilities, Rogers said that e-commerce has been a key driver in demand for last-mile facilities and this past year has shown the importance of location.

“As consumer expectations push for quicker delivery times, companies will be pressured to find last-mile facilities to meet this demand,” said Rogers. “The location of last-mile facilities and Urban Logistics infrastructures will be key drivers of demand for the industrial silos in the future.”

To read JLL’s QI U.S. Industrial Outlook, click here.