The average availability rate for warehouses and distribution centers declined in the second quarter, driven by the healthy economy and fewer than expected construction completions, according to the industrial real estate firm CBRE.
In addition, ecommerce is driving site selection, A separate CBRE report shows the location of last-mile distribution facilities opened within the past two years in the 15 largest U.S. population centers were positioned, on average, between six and nine miles from the centerpoint of the largest population areas they were designed to serve.
When it comes to the second quarter availability results, that data supports optimism about the economy for at least the rest of the year, the company observes.
Industrial availability declined by 10 basis points (bps) in the second quarter to 7.8%, its lowest level since the first quarter of 2001. The decline was the market’s 27th in the past 28 quarters.
The company attributes the slight tightening of the market in the second quarter to strong demand and a temporary slowdown in new building supply.
The industrial market benefited from the economy’s overall strength, notably spurred by gains in job growth, port traffic, increased ecommerce activity and key manufacturing indices, CBRE concluded.
Developers completed less industrial space in the second quarter (40.2 million square feet) than was earlier projected (46.5 million square feet), CBRE reports.
“This bounce-back in demand from a sluggish first quarter isn’t surprising, given the solid economic growth that we’ve seen this year,” says Jeff Havsy, chief economist in the Americas.
“New construction deliveries are expected to pick up in the second half of the year since the pipeline of new projects is active,” he predicts.
CBRE defines availability as the full amount of space available for lease, including vacant space and currently occupied space being marketed for occupation by other users.
In the second quarter, 42 of the U.S. markets that CBRE tracks registered declines in their industrial availability rates. Fourteen registered increases and six were unchanged.
Markets posting the largest declines in availability in the second quarter from a year earlier include Wilmington, DE, (down 370 bps); Dayton, OH, (down 320 bps); Jacksonville, FL (down 230 bps), Cincinnati (down 220 bps); Sacramento (down 210 bps); and Boston (down 200 bps).
Markets posting higher availability rates from a year ago include Austin (up 280 bps); Kansas City (up 130 bps); Fort Worth (up 120 bps); San Jose (up 100 bps); and Houston (up 90 bps).
Redefining ‘Last Mile’
In a separate report CBRE says last-mile ecommerce facilities are popping up in close proximity to the population centers of major cities, creating a foundation for rapid-delivery service that didn’t exist on this scale just a few years ago.
Denser cities tend to have shorter average distances, such as the 6-mile average in San Francisco and the 6.3-mile average in Philadelphia.
Meanwhile, cities that are more spread out have longer averages, such as 7.5 miles in Houston, 8.5 miles in Phoenix and 9 miles in Southern California’s Inland Empire.
The close proximity of the last-mile facilities to huge populations of customers is needed to support online shoppers’ growing expectations of nearly instantaneous delivery of their orders.
Earlier this decade, goods ordered online often were delivered to customers from much larger facilities much farther away, sometimes in other states, CBRE notes.
“These close-in fulfillment centers have proliferated within the past two years, underscoring the need for retailers to have large batches of inventory within 10 miles of most of their customers so they can fulfill orders as rapidly as possible,” points out David Egan, CBRE’s global head of industrial and logistics research.
“This is an entirely new link in most supply chains that delivers on the promise of fast, super-high-performance delivery.”
In compiling these average distances, CBRE focused on newly-opened distribution centers smaller than 200,000 square feet in the top 15 markets.
“Development of last-mile strategies still is in the early stages, so the average distances in many metros is likely to shrink a bit more in the coming years,” Egan says. “We’re also likely to see many different types of real estate considered for last-mile centers.”