Industrial property construction will hit a five-year high in 2021, topping 342 million square feet, according to CommercialSearch, the online commercial real estate marketplace.
Overall, industrial property completions are set to increase by 24% over last year’s numbers – up to 342 million square feet across 1,040 properties representing about the same area as Chicago O’Hare Airport.
As has been the case over the past year, industrial construction involving warehouse space and distribution centers has accelerated to accompany the explosion in ecommerce driven by the Coronavirus pandemic.
Not surprisingly, Amazon is the biggest driver of this trend. Eight of the top 10 projects slated for 2021 will be occupied by Amazon. The total square footage will be a massive 28.3 million square feet of DC space – about the area of Central Park in New York City – and that only includes the top 10 largest projects in the country.
Amazon is constructing four warehouses that total nearly 14.8 million square feet and is set to lease another 13.5 million from developers such as Fortress Investment Group, Dermody Properties and Seefried Industrial Properties.
“In contrast to last year, the sheer size of the largest completion is striking,” CommercialSearch analyst Patrick McGregor points out. “Last year, the largest facility was 2.8 million square feet, whereas nine of the largest 10 projects set to be delivered this year are larger than that.”
The Dallas-Fort Worth metroplex in Texas will lead the nation in industrial completions this year with nearly 28 million square feet of space across 79 projects, just 2% more than last year but accounting for 8% of all industrial space that’s projected to be delivered this year nationwide.
The developments are fairly evenly distributed within the total market, with large properties in South Dallas, Las Colinas and North Fort Worth, among others, CommercialSearch reports.
Phoenix, with nearly 10 million square feet of development less than Dallas, is in the No. 2 spot. Phoenix will add 56 properties and 18.4 million square feet – a 76% increase over last year when the developers added less than 10.5 million square feet of industrial space in that metropolitan area.
Many of the projects are in the South Phoenix and Chandler submarkets, but the largest projects, like Amazon’s 2.3-million-square-foot facility, are located in Phoenix-West.
However, one of the largest jumps in the nation is expected in Austin, Texas. In contrast to the 1.7 million square feet of Austin industrial space completed last year, the market is projected to see nearly 10.4 million square feet of deliveries this year, which represents a 511% jump.
More than half of this square footage is being added by just two properties: Giga Texas — Tesla’s four-million-square-foot manufacturing facility — and Seefried Industrial Properties’ 3.8-million-square-foot behemoth in Pflugerville, which Amazon will be leasing in its entirety.
But not all markets are growing, CommercialSearch notes. Houston’s planned completion of 10.3 million square feet this year actually marks a decrease of 41% in contrast to the more than 17.5 million square feet of Houston industrial space that was delivered in 2020.
The city has been hit hard by the recent collapse in oil prices, a situation which was made even worse when they went negative last year. While logistics remains important, market share seems to be bleeding to Austin and Dallas, McGregor says.
Interesting Insights
CommercialSearch asked some experts for their views and gathered a few interesting insights.
Will Curtis, principal broker at Crossed Sabers Commercial Real Estate in San Antonio says he is seeing increased stress on cybersecurity, which drives up costs in an area where lack of inventory is pricing smaller users out of the market.
Bryan Shaffer, principal & managing director at George Smith Partners, says, “Industrial overall is very affordable to build. Over time I expect to see an over-supply. This usually happens with real estate asset classes after they become overheated.”
He also believes that ecommerce will drive more activity and will result in more use of a hybrid space (defined as something between an industrial and retail and logistics space) that will be incorporated into current retail properties. “Walmart is an example of a brand where we are seeing this trend now,” Shaffer observes.
He also predicts that another likely impact on industrial will come from the emergence of more food service commercial kitchens located within industrial properties, designed to service the proliferating food delivery companies.
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