Market Factors Drive Industrial Development

Jones Lang LaSalle sees industrial development and investment attracting interest from overseas firms


Chicago—July 24, 2012— Australian commercial real estate investor and developer Goodman Group’s recent entry to the North American logistics and industrial property market is the latest news to underscore the resiliency and opportunities in U.S. industrial property market, according to Jones Lang LaSalle’s industrial and logistics group.

Goodman Group expects to invest $1.5 billion in the sector across North America in new developments through an exclusive agreement with Irvine, Calif.-based Birtcher Development. Jones Lang LaSalle, which acted as strategic advisor on the Goodman-Birtcher agreement, views the influx of foreign capital to the U.S. industrial market as one of the key trends driving the resurgence of the sector. 

“Jones Lang LaSalle has done an excellent job in collaborating with us to help create our national land strategy,” said Brandon Birtcher, Chief Executive Officer, North America for Goodman Birtcher. “The firm’s senior and regional management have assisted our efforts to secure and underwrite prime development sites in our targeted markets.”

Low U.S. interest rates, positive economic indicators and an increasing demand for prime, well-located logistics property are some of the other elements that bring focus to U.S. industrial assets such as warehouses and distribution centers, according to Tim O’Rourke, Executive Vice President, Jones Lang LaSalle.

Other factors such as the revival of the U.S. manufacturing sector, the trend toward on-shoring manufacturing back to the U.S. and the demand for big-box distribution space by the e-commerce sector are driving developers and investors toward U.S. industrial real estate, according to Rich Thompson, Managing Director, Supply Chain & Logistics Solutions, Jones Lang LaSalle.

“Compared with other product types, industrial properties are less capital intensive, have not historically experienced the highs and lows in rental rates and values and remain a stable and predictable asset class,” said Mike Fowler, Executive Vice President, Jones Lang LaSalle. “The evolution of global economics and the global supply chain are transforming the U.S. industrial real estate landscape, and attracting the attention of some major global players.”

The top five themes driving the industrial real estate resurgence include:

Strong supply and demand characteristics—The industrial real estate sector currently benefits from stable, healthy demand and an increasingly constrained supply of high quality space. The national vacancy rate slowly declined from its 2010 peak to reach 9.1 percent, a level last seen in 2009. Given a rather nominal, but still steady, amount of positive net occupancy, it fell by 90 basis points from the first quarter of 2011, when the figure was at 10 percent.  Now it is moving toward pre-recession levels of 7.5 percent. Demand has maintained a stable trajectory, marked by eight consecutive quarters of positive net absorption, but at 25.3 million square feet in the first quarter, it remains well below pre-recession levels. However, a spike in demand for ‘big-box’ distribution and logistics space (greater than 400,000 square feet) re-introduced speculative development in key hub markets where vacancy has decreased significantly. While in the meantime, a renewed confidence from corporations has triggered a meaningful flow of build-to-suit activity. Vacancy in the big box market is running at less than 3 percent in a number of the major logistics markets in the U.S. Strong demand over the last two years nearly burned off all existing Class A product in these locations.

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