JLL's Q3 Report: Small to mid-size industrial real estate dominating the leasing market

Craig Meyer

 CHICAGO, IL, Nov. 30, 2021 – The industrial real estate sector continues to break records going into the tail end of 2021. 

The increase in online shopping has become a primary driver of demand for smaller logistics facilities, making the most popular size segment for leasing 10,000 to 49,000 square feet in the third quarter, according to JLL’s Q3 Industrial Report.

Nationally, more than 137.9 million square feet of total industrial product was leased in Q3, a new high for 2021.

“With demand for industrial space showing no signs of slowing down, new inventory will be needed to bring supply and demand closer to equilibrium and negate a future shortage of industrial space,” said Craig Meyer, President, Industrial, JLL.

“As ecommerce grows, now more than ever Logistics and Distribution and 3PL will be at the forefront, especially with the upcoming holiday season and impending impacts from the cargo ships backup logs observed at the close of the quarter.”

More than half of leasing in the U.S this quarter came from users looking for space below the 100,000 square foot threshold.

The surge in ecommerce, labor shortages, and consumer expectations, in terms of speed and delivery of product, have added more pressure than ever to the supply chain and its operations. As a result, industries servicing the supply chain and e-commerce, continue to experience an increase in demand.

In Q3 the Logistics and Distribution and third-party logistics (3PL) industries accounted for 28.3 percent of total leasing volume.

As more and more companies continue to outsource their operations to meet consumer online demand JLL expects these industries to flourish, especially within the 3PL sector.

Leslie Lanne

“In a world of two-hour shipping, consumers have come to expect a specific window for their goods to arrive. said Leslie Lanne, Executive Managing Director, Urban Logistics, JLL.

"The growth in online shopping and the need for fast delivery times is driving demand for urban industrial space unlike ever before.

“Ecommerce will keep driving the need for vertical space, and as a result we’re going to see this new urban logistics asset class spark progressively more developer and investor interest.”

Investors searching for yield identify this space as a growing opportunity segment and are deploying capital toward acquiring scale.

For example, a joint venture formed between Arden Group and Arcapita Group recently announced plans to invest up to $2 billion in acquiring small- and medium-bay multi-tenant warehousing space across major U.S. markets.   

“With the tremendous leasing velocity that we are seeing in every market around the country, buy-side underwriting and investor demand for this segment of the market is stronger than what we currently see within the big-box segment,” added Trent Agnew, Capital Markets Platform Co-Leader for JLL.

Trent Agnew

“The primary driver for this product type is rent growth, as we are seeing renewal rents on smaller spaces routinely push up 30 to 50 percent at expiration, driving significant NOI growth.” 

With construction costs continuing to increase, investor demand for small bay warehouses is expected to continue increasing, which is anticipated to drive further cap rate compression in 2022. Select core markets are seeing class B product trade at a sub-4 cap. 

 Contact:

 

Kimberly Steele

JLL Manager

Public Relations

Phone: +1 713 852 3420

Email:  Kimberly.Steele@am.jll.com