Demand for Industrial Space Projected to Top 250 Million Sq. Ft. in 2014

Posted on March 13, 2014

As major retailers and e-commerce firms such as continue to ramp up their distribution and fulfillment networks they are expected to be joined by building materials, appliances and furniture companies expanding their capacity as housing construction resumes in a strengthening economy. As a result, demand for warehouse and other industrial properties is expected to spike in 2014, according to a forecast released this week by the NAIOP Research Foundation.

The NAIOP study, authored by Drs. Hany Guirguis of Manhattan College and Joshua Harris of the University of Central Florida, projects that quarterly readings will fall between 60 and 65 million square feet of positive absorption through 2014.

Assuming GDP holds close to forecasts of above 3 percent growth in 2014, they expect industrial space to post approximately 250 million square feet of net absorption in 2015. More specifically, they forecast quarterly net absorption figures will range between 58 and 65 million square feet, with a mean forecast of 68.8 million square feet, for all of 2015. Also 2014 may actually produce a larger net absorption figure than 2015 due to pent-up demand for space left over from the recession which should normalize by 2015.

“Demand for all types of industrial space — warehouse, fulfillment-distribution centers, manufacturing and flex — is robust,” noted Thomas J. Bisacquino, president/CEO of NAIOP. “An intense increase in e-commerce has steepened the demand for distribution and fulfillment centers, and companies are gobbling up space as a result.”

Heightened demand big box space is already resulting in a burst of new speculative warehouse projects, with nearly 100 million square feet of new construction tracked by CoStar in the opening weeks of 2014.

As of early last month, CoStar’s PPR forecasting and analytics company was tracking 160 new leases of more than 100,000 square feet for a total of 35 million square feet across the U.S.

New housing starts were up 18% in 2013, and construction growth will likely continue as household formation rises and existing inventory is absorbed.

Meanwhile, the falling U.S. jobless rate and increased spending power for families is fueling gains in retail sales, which reached another record high in December 2013. Historically, rising retail sales has driven demand for retail space in shopping centers and malls. In the current cycle, demand for distribution and fulfillment centers will only increase as consumers purchase items online rather than traditional bricks-and-mortar stores.

“The combined forces of these two trends likely will result in continued growth in demand for warehousing and distribution facilities, specifically from the retail trade and housing construction sectors,” Guirguis and Harris said in their report.

The forecast utilizes employment, GDP, exports and imports, and air, rail and shipping data and surveys leading indicators such as the Federal Reserve Board’s Index of Manufacturing Output (IMO), the Purchasing Managers Index (PMI) from the Institute of Supply Management (ISM).