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New Report: Industrial Space Demand Forecast

Industrial Space Demand Remains Strong 

Demand for industrial real estate continues to be strong as the long-term trend toward e-commerce (and away from in-store sales) continues with no end in sight. With nearly 100 million new square feet delivered nationally since the beginning of the year, 450 million square feet currently under construction and another 450 million planned, the demand for industrial real estate still outpaces supply.1

Because of this, authors Dr. Hany Guirguis and Dr. Michael Seiler forecast that the total net absorption in the second half of 2021 will be 162.6 million square feet with a quarterly average of 81.3 million square feet. In 2022, the projected net absorption is 334.6 million square feet with a quarterly average of 83.6 million square feet. An improvement in the outlook for the economy in 2021 and 2022 is behind the upward revision of the 2022 forecast. For example, the real GDP growth rate is now forecast to be 7% in 2021, above the previous forecast of 5% growth. As economic growth is projected to revert toward long-term growth rates in 2023, net absorption in the first half of the year is forecast to be 160.5 million square feet, for a quarterly average of 80.2 million square feet. 

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New Report: Industrial Space Demand Forecast

Originally published by Hany Guirguis, Ph.D., Manhattan College and Michael J. Seiler, DBA, William & Mary in August 2021

Industrial Space Demand Remains Strong 

Demand for industrial real estate continues to be strong as the long-term trend toward e-commerce (and away from in-store sales) continues with no end in sight. With nearly 100 million new square feet delivered nationally since the beginning of the year, 450 million square feet currently under construction, and another 450 million planned, the demand for industrial real estate still outpaces supply.1

Because of this, authors Dr. Hany Guirguis and Dr. Michael Seiler forecast that the total net absorption in the second half of 2021 will be 162.6 million square feet with a quarterly average of 81.3 million square feet. In 2022, the projected net absorption is 334.6 million square feet with a quarterly average of 83.6 million square feet. An improvement in the outlook for the economy in 2021 and 2022 is behind the upward revision of the 2022 forecast. For example, the real GDP growth rate is now forecast to be 7% in 2021, above the previous forecast of 5% growth. As economic growth is projected to revert toward long-term growth rates in 2023, net absorption in the first half of the year is forecast to be 160.5 million square feet, for a quarterly average of 80.2 million square feet. 

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Lessons in Mitigating Risk on a Megaproject

Originally published in NAIOP's Development Magazine Spring 2021 Issue by Ann Moore.

Waterfront development in California used multiple strategies to get off the ground.

Megaprojects can transform landscapes, improve quality of life and deliver significant economic benefits to their communities. When they are sited on a waterfront in a binational urban area, they take on even more complexity. In Southern California’s San Diego County, a megaproject will transform a formerly blighted stretch of waterfront into a thriving destination. The project team is pursuing innovative ways to reduce the risk that could be instructive to other development teams. 

A megaproject is defined by its scale and complexity. Typically costing $1 billion or more, such projects take many years to develop and build, involve multiple public and private stakeholders and impact millions of people, according to the Oxford Handbook of Megaproject Management. A considerable upside also brings great risk, which must be managed to improve the chances of success. 

On approximately 535 acres, the Chula Vista Bayfront is larger than Disneyland and one of the last significant large-scale waterfront development opportunities in Southern California. Once defined by a power plant and an aerospace factory, this brownfield waterfront is ripe for redevelopment in the U.S.-Mexico border region of 6.5 million people. The location is about a 15-minute drive from the busiest land border crossing in the western hemisphere. More than 100,000 people cross the San Diego-Tijuana, Mexico, border every day. Thus, the project site can target a market that includes U.S. citizens, Mexican nationals, and travelers using airports in San Diego and Tijuana. 

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Measuring the Impact of Smart Building Technology Investments

Originally published by Marta Soncodi for NAIOP's Spring 2021 Issue.

A new ratings system quantifies how effective they are across several important criteria. 

Investing in smart building technology may not be seen as a priority after commercial real estate investments were hit especially hard in 2020. However, if improving tenant experience was being considered before the pandemic, it’s now an imperative.

Why should commercial real estate owners consider investing in smart building technology upgrades? Based on research and industry analysis, fully integrated smart systems can increase building efficiency, optimize facility operations, improve occupant safety, security and wellbeing, and enhance end-user preferences. And, in light of the pandemic, stakeholders — commercial real estate companies, building owners, managers, and tenants — should examine the competitive advantages of smart building technology. 

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2020 NAIOP NC Project of the Year Winner: Optimist Hall & The RailYard at South End

Originally published by Pat Fogleman, Executive Director of NAIOP North Carolina on August 25, 2020.

NAIOP North Carolina comprised of NAIOP Charlotte, NAIOP Piedmont Triad, and NAIOP Raleigh Durham, is recognizing our 2020 project winners. NAIOP is proud to recognize projects that positively influence our communities and industry in North Carolina.

The winning projects will be officially announced during an upcoming NAIOP NC webinar this September. The award presentation was initially scheduled to be held at the 2020 NAIOP NC conference at Pinehurst in March but due to COVID-19 the conference has been rescheduled to March 2021 at which time we will again recognize our 2020 winners along with our 2021 winners.

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View NAIOP NC Award Winners 

Amazon Could Provide a Peek at Industrial’s Post-COVID Future

Originally published in NAIOP's Summer 2020 Issue by Ed Kimek, AIA, NCARB

The e-commerce giant understands how to connect products and consumers.

Commerce was changing before the outbreak of COVID-19, from the exponential trajectory of e-commerce, to the growth in consumer demand for more immediate goods, to the rise of urban industrial development to fulfill last-mile needs.

The unknowns of this novel virus have accelerated that change to a tipping point. The structures of commerce, and the development that supports it, may be altered for good. This crisis is proving the necessity of a resilient supply chain.

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Apply for NAIOP’s National Forums Program

The National Forums program brings together industry professionals in select groups to share industry knowledge, develop successful business strategies and build strong relationships in a confidential and non-competitive setting. Learn more about this unique opportunity and apply for appointment today. 

The Forums provide a unique opportunity for members to openly discuss project challenges, business opportunities and lessons-learned in a confidential and non-competitive setting. Over time, fellow members become a trusted circle of advisors.

The National Forums are an excellent way to become involved, stay in touch and develop new connections with key industry leaders.

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Preparing for a New Normal in Commercial Real Estate

Originally published on June 5, 2020 by Shawn Moura, Ph.D. 

The coronavirus pandemic has accelerated social and economic changes that were underway before the outbreak, while also leading consumers, workers and employers to adopt new preferences and behaviors. Collectively, these changes will require that commercial real estate firms adopt new approaches to design, customer relations and business operations to be successful in the future. Christopher Lee, founder and CEO of CEL & Associates, offered his predictions for how the outbreak will reshape demand for commercial real estate in the U.S. and outlined steps that firms can take to remain competitive during a recent NAIOP webinar.

Lee observed that the commercial real estate market is currently about halfway through a downturn. Although the Federal Reserve’s intervention in credit markets and fiscal stimulus measures have mitigated some of the outbreak’s effects on the economy, “all of that is going to burn off fairly soon unless another economic stimulus comes forward.” Substantial economic uncertainty and fears about the coronavirus have paralyzed decision-making in most markets. Buyers are concerned about the pandemic’s effects on building revenues and expenses as well as potential liabilities from infections, and some may no longer be able to secure favorable financing for an acquisition. Sellers are uncertain whether they should sell now or wait out the pandemic, and are unsure whether they will have good options for investing the proceeds of a sale.

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Integrating WELL into Industrial Properties

Originally published by Heath Abramsohn in the Spring 2020 Issue

The Rockefeller Group Logistics Center in Piscataway, New Jersey, opened in October 2019. It marked the culmination of four years of collaboration between Piscataway Township, Middlesex County and the companies involved with the project. With five buildings totaling 2.1 million square feet across 228 acres, the effort transformed a former brownfield site into a productive asset that should create more than 1,500 permanent jobs.

However, for the commercial real estate industry, an especially newsworthy aspect of this $250 million project could be the introduction of a concept that has the potential to revolutionize the way developers and users approach industrial space.

One of the park’s five buildings will not only be LEED Platinum but will go a step beyond by seeking WELL certification. Once certification is complete, it will be only the second WELL-certified U.S. industrial building, and the first such building in the world to achieve both LEED Platinum and WELL certifications. That means that the facility is not only energy efficient and environmentally friendly; it is also healthy for the people who work there.

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Upcoming Webinar: What’s Next for the Dynamic Industrial Market?

Whether you are developing, investing or brokering industrial real estate, you know the product has been hot and continues to expand. E-commerce, last-mile delivery, two-story urban distribution centers and more continue to shape all aspects of the multifaceted industrial market.

Join NAIOP on Monday, April 20th and get the inside track on upcoming opportunities in the sector with Dr. Hany Guirguis, Professor, Economics & Finance, Manhattan College and Dr. Tim Savage, Clinical Assistant Professor, NYU SPS Schack Institute of Real Estate. They will provide insights and data from the new NAIOP Industrial Space Demand Forecast, identify linkages between overall economic activity and the demand for industrial real estate, and engage in a live Q&A session with attendees.

Industrial Intensification Grows Up

As e-commerce and technology push industries to evolve, businesses are placing greater importance on integrated workspaces. These are places where design, manufacturing, distribution and showroom activities occur within a single building.

At the same time, companies must deal with land supply constraints, increases in space demand, and economic and population growth. These trends are driving new opportunities for industrial lands intensification, such as multilevel developments (sometimes referred to as “vertical” or “stacked”), while challenging old planning regulations.

Industrial properties are no longer single-story buildings located on the urban fringe. New forms of industrial intensification provide more space for companies to expand and boost employment growth within communities.

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Modern Industrial Development On-demand Course

The industrial warehouse of today has come a long way from its basic “big box” predecessor. This course provides professionals with an understanding of the components of the modern industrial warehouses being developed today, and an overview of the steps involved in the ground-up development of these industrial buildings. Explore the roles, analytical tools used, critical decisions, tasks, risks and pitfalls that apply at each step of the industrial development process. The course begins with an overview of the product type, then moves on to niche topics including infill development, cold storage and the supply chain.

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What Will Industrial Development Look Like Post COVID-19?

Originally published on April 1, 2020, by ED KLIMEK, AIA, NCARB

Commerce had begun to change before the outbreak of COVID-19; from the exponential trajectory of e-commerce to the rise in consumer demand for more immediate goods to the rise of urban industrial development to fulfill last-mile needs. The unknowns of this novel virus have accelerated that change to a tipping point at which the structures of commerce, and the development that supports it, maybe altered for good. This crisis has exposed the strengths and weaknesses of the market, and in doing so proved the necessity of a resilient supply chain. What will new commerce look like and what will be the industrial development response to support it? Some of this answer may lie in examining the world’s largest commercial enterprise, a company that had already set change in motion, and the one company that may have grown the most as a result of demand driven by the impact of COVID-19: Amazon. Through the lens of Amazon’s keys to success, we can see a path forward for industrial development to be part of the resilient supply chain.

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Making Multistory Industrial Work

Posted on October 10, 2019

By Kathryn Hamilton

E-commerce is driving growth in neighborhoods where malls used to stand tall, and multistory is the name of the game in industrial development today. In Brooklyn, an 18-acre site in the Red Hook district will be the future home to a four-story, 1.3-million-square-foot distribution center – the largest multistory warehouse in the U.S. It’s groundbreaking in its scope and design, but not without its own issues. So what are the challenges with multistory and how can developers make it work? A panel at NAIOP’s I.CON East 2019 sought to answer the tough questions.

Leslie Lanne, managing director with JLL, said the primary driver behind multistory is getting as close as possible to the consumer base. This proximity is more than just mileage – it’s the time it takes to get the goods to the consumer. For example, a warehouse in New Jersey is located only five miles from Brooklyn, but it can be tough to achieve a trip from the warehouse to consumers and back in less than two hours.

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Industrial Demand Forecast Decreases as Economy Slows

Posted on August 19, 2019

By Dr. Hany Guirguis and Dr. Joshua Harris

The NAIOP Research Foundation has published the NAIOP Industrial Space Demand Forecast for Q3 2019.

Key Takeaways

  • The forecast for net industrial space demand has decreased amid slower growth in the U.S. economy. Absorption is now expected to average 37 million square feet per quarter for the next two years. This is a significant slowdown from the average 60 million square feet of quarterly net absorption experienced during 2017 and 2018.  
  • The average quarterly completions fell to 42 million square feet in the first half of 2019, down from an average of 54 million square feet per quarter during 2017 and 2018. Supply and demand are likely to stay in balance for the industrial sector; therefore, rents and vacancy rates should remain stable in many markets nationwide. 
  • A recession is not likely in the near term, but a general slowdown appears already underway; the first report of GDP growth in the second quarter fell to 2.1% from the 3.1% annualized result of the first quarter.
View the Forecast

Eight Things to Know About Industrial Real Estate Demand

Posted on August 12, 2019

By Gillam Campbell

Tariffs are in the air, but dealmaking continues on the ground in the U.S. industrial property market. Despite a slight softening, vacancy continues to hover at all-time historic lows. So, what’s driving the action? The following are eight things to know about demand for industrial property, according to JLL’s latest research Cheat Sheet:

  1. More tenants on the move, more locations needed. A year ago, our research showed 1,200 tenants seeking 439 million square feet of space. Now, roughly 1,600 tenants are in the market, looking for approximately 600 million square feet of space. The growing number of tenants includes not only new-to-market occupiers, but also companies that are looking to expand or replace square footage – whether  that means a last-mile e-commerce delivery center close to consumers or a more modern, flat-floor big-box warehouse that is ready for today’s high-tech distribution.
  2. Less is more when it comes to square footage. As consumers begin to expect next-day or even same-day delivery from their e-tailers, distribution strategies increasingly include smaller delivery centers, some of them in urban infill locations, that help companies cover the last mile to the customer. No wonder the average square footage requirement has shrunk by 10,000 square feet over the past year to reach 360,000 square feet.
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Mexican Tariffs Inject Uncertainty into Industrial Market

Posted July 3, 2019

By Joshua A. Harris

The industrial space market, along with the broad macroeconomy in the U.S., received a new jolt of uncertainty with President Donald Trump’s recent announcement of tariffs of up to 25% on goods imported from Mexico. These tariffs, if actually implemented, would represent a new front in global trade wars which have been recently escalating with China and others. Mexico is a very significant trade partner with imports totaling $371.9 billion and exports $299.1 billion in 2018 alone; this makes Mexico our third-largest trading partner and second-largest market for exported U.S. goods. Further, much of the U.S.-Mexican trade includes partially finished goods and component parts that are part of critical supply chains such as those in U.S. automotive production.

As such, the impact of a sustained bilateral trade war between the U.S. and Mexico could be uniquely devastating to both economies and especially to the U.S. industrial space markets. First, inland port markets, such as those in California and Texas, could be directly impacted by lowered volume of goods moving by truck and rail. Second, manufacturing and distribution markets in areas of high levels of U.S. manufacturing activity, such as Ohio and Tennessee, could be impacted by reduced orders as U.S. producers react to price increases of raw materials and components as well as lagging demand for exports. Finally, the vast network of distribution centers supporting retail and e-commerce could be affected by lower demand for goods given an economic slowdown and increased prices on all goods. In sum, such a trade war could easily tip the U.S. into recession.

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Industrial Sector Embraces Innovation as Consumer Demand Stays Strong

Posted July 2, 2019

By Trey Barrineau

Amid a strong economy and surging demand for consumer products, industrial remains one of the hottest segments in the commercial real estate industry. That’s in spite of a minor cooling off that’s predicted for 2019 after several years of exceptional growth powered by the rise of e-commerce and the need for last-mile distribution facilities.

The NAIOP Industrial Space Demand Forecast for the first quarter of 2019 sees demand remaining steady at 57 million square feet of absorption per quarter, roughly the same as 2018. Additionally, the national vacancy rate is just 7 percent.

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Industrial Demand to Remain Level as Economy Steadies

Posted on March 20, 2019

By Dr. Hany Guirguis and Dr. Joshua Harris

The forecast for net industrial space demand will remain steady in 2019. According to Dr. Hany Guirguis of Manhattan College and Dr. Joshua Harris of New York University, demand will remain at approximately 57 million square feet per quarter for 2019. That is unchanged from the average actual 2018 quarterly absorption of 57 million square feet. Industrial absorption in the final half of 2018 came in slightly above expectations due to higher consumer spending and retail sales, which were buoyed by a strong job market.

Industrial demand will be off to a strong start in 2019 with a potential tapering off into 2020 as rising interest rates moderate the economy’s growth rate. At present, the risk of a downturn in the industrial space market appears slim as the nationwide vacancy rate sits at a historically low 7.0 percent. Further, gross and net asking rents are at all-time highs, indicating that the market supply continues to tighten at a steady rate.

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New Report: Industrial Demand to Remain Level as Economy Steadies

Posted on March 4, 2019

The NAIOP Research Foundation has published the NAIOP Industrial Space Demand Forecast for Q1 2019.

Key Takeaways

  • Demand will remain at approximately 57 million square feet per quarter for 2019. That is unchanged from the average actual 2018 quarterly absorption of 57 million square feet.
     
  • At present, the risk of a downturn in the industrial space market appears slim as the nationwide vacancy rate sits at a historically low 7.0 percent. Further, gross and net asking rents are at all-time highs, indicating that the market supply continues to tighten at a steady rate.
     
  • While data are somewhat suppressed due to the U.S. government shutdown that took place from December 22, 2018, until January 25, 2019, economic indicators point to moderate growth.
     
  • Overall U.S. economic activity will remain steady in 2019, with annualized rates of GDP growth in the mid-2 percent range. Steady growth is the biggest factor keeping the industrial demand forecast stable. The labor market and overall consumer confidence are also expected to grow for the year, with industrial space demand increasingly influenced by consumer spending.

Overall, the U.S. industrial real estate markets appear to be healthy and stable. It is the asset class that is potentially in the best position to weather any macroeconomic downturn that may come in the next several years.

View the forecast.