Report: E-commerce and last mile demands drive industrial real estate leasing growth in Q3

Third quarter United States-based industrial real estate activity shined, with logistics-focused markets helping to lead the way, according to the “Third Quarter Industrial Outlook” recently issued by Chicago-based industrial real estate firm JLL.

The report noted that third quarter industrial leasing came in at 114 million square feet and was paced by e-commerce (15.3 million square feet), logistics & distribution (14.3 million square feet), and 3PLs (7.1 million square feet), as well as traditional retailers (7.1 million square feet), construction materials & building fixtures (9.9 million square feet); manufacturing (2.1 million square feet); and food ands beverage (6.1 million square feet).

E-commerce activity, which has climbed to record levels over the course of the ongoing COVID-19 pandemic, due to increasing demand levels, has accounted for more than 71.3 million square-feet year-to-date and had headed up by 45.1 million square feet going back to 2019, according to JLL. What’s more, the firm said that e-commerce represents 13.4% of total leasing, for the third quarter, and its said that this could continue to remain intact into 2021, due to increased last-mile delivery serving as a main catalyst for high e-commerce demand, coupled with “an emphasis from tenants in the industry to fill last-mile distribution needs…[a]s consumers continue to favor online shopping, we anticipate this industry to drive the bulk of demand in 2021.

Other key data points highlighted by JLL in the report included:

—97 million square feet of new construction added to the industrial market in the third quarter, which set a new record for quarterly deliveries, with Inland Empire, Dallas-Fort Worth, Eastern & Central Pennsylvania, New Jersey, Chicago and Houston representing the top markets, which contributed to almost 46.1 million square feet of new projects delivered;
—speculative pre-leasing rates increased to 34.7 percent for new deliveries, jumping up 16.6 percent from Q2. The amount of spec product under construction continues to hold steady at 67.6 percent.
—total net absorption is on track to hit the 200 million square foot benchmark in 2020, a level it has exceeded annually going back to 2014, with year-to-date absorption at around 165 million square feet (the markets with the highest net absorption rates were Dallas/Fort Worth, Chicago, Eastern & Central Pennsylvania, Atlanta, and Inland Empire with a combined total of 77.6 million square feet);
—the average asking rent for the U.S. industrial market came in at $6.31 per square foot at the end of the third quarter, with annual rent growth up 4.2%

JLL noted in the report that the outlook for industrial real estate remains bright and the market continues to prosper and remain resilient, amid the uncertainty surrounding COVID-19.” What’s more, it added that with working from home becoming more commonplace, coupled with evolving stay at home orders, e-commerce is expected to be what it called a driving force for leasing volume going into 2021. And it added that is also the case for the Construction Materials & Building Fixtures sector, with more people devoting time to focus on long-delayed construction projects.

In an interview, Director of Americas Industrial Research, JLL, Mehtab Randhawa explained that in the early stages of pandemic, the boom, which experienced has experienced over the past several months, was not expected to be as big as it has become.

“But since March, with the stay-at-home orders and physical location shutdowns, we have seen a consistent spike in e-commerce being the number one sector now for the third consecutive quarter, at 15.2 million square feet,” she said. “And we are also seeing more people focused on home renovation-type projects, which drove up construction and building fixtures activity, too. The third quarter numbers reflected that through a good variety of companies across different sectors.”

From an absorption perspective, Randhawa said that with the current level, through the third quarter, at 165 million square feet, the market is on track to hit or exceed the 200 million mark in 2020.

“Looking at the fundamentals and the way things have performed, we feel pretty good heading into 2021,” she said.