Monthly Archives: October 2019

Bigger Not Always Better

Demand for well-located, small light-industrial properties—less than 120,000 sq. ft.—continues to outpace that for larger warehouses, largely driven by local economic activity, urban population growth and same-day delivery expectations of consumers.

Light-industrial properties account for more than half of total U.S. warehouse inventory. The availability rate for those between 70,000 and 120,000 sq. ft. has dropped by nearly 4 percentage points to 7.4% over the past five years. Consequently, their rents have climbed more than 30% to an average of $6.67 per sq. ft. By comparison, warehouses of more than 250,000 sq. ft. had rent growth of 16% over the same period.

New development has been extremely limited, with completions accounting for just 1% of total light-industrial warehouse inventory since 1990. This dearth is attributable to challenges in developing smaller parcels in densely populated areas, including competition with other uses and high land values.

Strong demand for smaller warehouse properties will continue as retailers and logistics operators expand their networks to increase their proximity to consumers. As such, rent growth likely will continue outpacing that of large bulk warehouses.

Industrial Warehouse Availability Rates by Building Size Segment

Source: CBRE Econometric Advisors, CBRE Research, Q2 2019

Industrial Warehouse Rent Growth by Building Size Segment

Note: TW rent index, which is an estimate of net effective rents, not to be confused with average asking net rents.
Source: CBRE Econometric Advisors, CBRE Research, Q2 2019

Construction Pipeline, Small vs. Large Warehouses

Note: Underway and planned as of Q2 2019.
Source: CBRE Econometric Advisors, CBRE Research, Q2 2019

By Matthew Walaszek, Associate Director, Industrial & Logistics Research, CBRE.

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The Top U.S. Metros for Employment Growth

Orlando experienced the best year-over-year employment growth rate in August among the 41 largest metros in the U.S. at 4.0%, nearly triple the national rate of 1.4%.

New York and Dallas/Ft. Worth led the country for total job growth, gaining, respectively, 134,000 and 116,000 jobs year-over-year.

The metros with the highest rates of job creation remained concentrated in the South and West. Cincinnati continued to lead the 10 Midwest metros with a 2.5% gain. Among the seven Mid-Atlantic/Northeast metros, Boston, New York and Philadelphia tied for highest growth rate at 1.4% (equal to the U.S. average).

The employment growth rate was essentially unchanged from three months ago in over half of the metros analyzed (25 out of 41). One-fifth of the metros had faster job growth than three months ago. Orlando’s growth increased significantly.

Eight (20%) of the metros experienced slower employment growth rates— by less than one percentage point in all instances except for Sacramento and Las Vegas.

Unemployment rates in 26 of the 41 metros were at or lower than the U.S. average of 3.8% (not seasonally adjusted). Boston and Denver had the lowest levels at 2.6%, followed by San Francisco, San Jose and Nashville (2.7%). Nine of the metros had unemployment levels of 3.0% or lower.

Low unemployment represents solid economic expansion. With unemployment at historic lows, labor shortages in a wide array of industries are now common in many metros. Many jobs are not readily being filled, and labor shortages are holding back employment growth in many, possibly all markets.

Employment Percentage Change Year-Over-Year

By Jeanette Rice, Americas Head of Multifamily Research, CBRE.

Investment Rising Rapidly in Age-Restricted Housing

Seniors housing & care is the largest “alternative” asset class based on investment volume over the past decade. Investment in the sector has been particularly robust over the past six years.

Annual buying activity from 2014 through 2018 averaged $17.5 billion. Investment in 2019 is on pace to reach at least $15 billion.

In 2018, acquisitions fell 7.7%. The year-to-date 2019 total slipped 6.2% from the prior year. Interest may have waned somewhat from seniors’ yield premium coming down and from overbuilding concerns (though construction has slowed considerably).

The larger driver for the slowdown in acquisitions activity is likely limited available product to buy, both individual assets and portfolios.

Investment is still relatively small in the 55+/active adult sector but rising rapidly according to Real Capital Analytics’ data, which covers all types of age-restricted income-producing properties, including active adult.

Acquisitions exceeded the $1 billion mark first in 2014 and reached $2 billion in 2018. Last year’s rise over 2017 was impressive at 13.7%.

Buying activity remains robust in 2019, and sales are on pace to exceed 2018’s total by a sizeable margin.

By Jeanette Rice, Americas Head of Multifamily Research, CBRE.