The top North American markets for large warehouses (200,000 square fteet or larger) saw record transaction activity in 2020, with the total number rising 25%, according to CBRE.
As has been widely noted, the surge in leasing activity stems from the pandemic’s boom in online shopping.
CBRE examined 22 markets with more than 75 million square feet of big-box facilities. In total, big-box transactions accounted for 349 million square feet of activity in these markets, up nearly 25% from 280 million square feet in 2019.
Ecommerce-only users accounted for 27.1% of big-box transactions by square footage, followed by third-party logistics (25.8%) and general retail and wholesalers (24.7%).
“The pandemic underscored the importance of strong distribution networks, and the availability of warehouse space is a crucial piece of the supply chain,” said John Morris, executive managing director and leader of CBRE’s Americas Industrial & Logistics business. “Demand for industrial real estate across the country was, and continues to be, as strong as ever as companies work to keep up with consumer demand.”
The average vacancy rate for big-box industrial space in these markets ended 2020 at 4.6%, down from 5.2% at year-end 2019. Toronto had the lowest vacancy rate at a microscopic 0.3%.
California’s Inland Empire led with 42.5 million square feet in transactions, followed by Southern New Jersey and Eastern Pennsylvania (41.8) and Chicago (41.1). Phoenix had the highest percentage of its overall inventory absorbed in 2020 (9.1%).
Taking Investors’ Temperature
Real estate investors in the Americas are showing a clear shift in risk tolerance and a preference for secondary markets in 2021, CBRE found in its latest Americas Investor Intentions Survey. The survey covers all asset types, finding investor sentiment and activity began to strengthen in the second half of 2020, and should continue to improve this year.
“In a clear sign that risk tolerance is growing, 30% of investors say they are targeting opportunistic and distressed assets in 2021 – this is a record level and compares with 16% in 2020,” CBRE observed.
For the first time in the seven-year history of the CBRE survey, large investors (those with assets under management of more than $50 billion) are more interested in secondary than primary markets. Sun Belt markets are the most appealing: Austin is the top preferred market, followed by Dallas.
Investors are also expanding the types of properties on their shopping list, with 72% of respondents actively pursuing investment in one or more real estate alternatives in 2021, up from 54% in 2020.
Life science labs, medical offices and single-family rentals are the most popular targets, followed closely by data centers and cold-storage facilities.
“Investors in the Americas appear more aggressive and will accept more risk to achieve higher returns. This is likely due to a stable economic environment, supported by government stimulus, and the belief that available capital will remain abundant for the foreseeable future, as well as intense competition among investors,“ said Chris Ludeman, Global President of Capital Markets for CBRE.
“While the equity markets have signaled rising inflation expectations, at the time of the survey commercial real estate investors did not appear to be overly concerned in the near term.”
While investor sentiment is improving, a disconnect exists between buyers and sellers: 70% of respondents plan to purchase 20% more than last year, while only 30% plan to sell at least 20% more.