Senior Brokers See Occupiers Proceeding With Caution, Putting Focus on Facilities Automation
After a record run of distribution center expansions in 2021 and 2022, U.S. industrial tenants have proceeded much more cautiously in recent months. Early 2024 data shows that industrial tenants have continued to lease and occupy more U.S. industrial space, but at the slowest pace since 2012.
While there have been a few positive signs that may signal an impending recovery in industrial tenant demand, including a resumption in the growth of business inventories and goods imports, the timing of any potential recovery remains uncertain. Many manufacturers and distributors are pausing expansions and focusing on increasing efficiency at their existing locations through added automation.
A major example of this trend was the decision by UPS to close 200 distributors over the next three years while consolidating operations into its most automated facilities.
With industrial occupier demand evolving quickly, we gathered insights from brokers providing tenant representation and corporate real estate advisory services to a broad range of industrial users from different regions of the U.S., all of whom regularly communicate with Fortune 500 companies regarding their industrial space needs. Here are some of their perspectives on the expected performance of the U.S. industrial real estate sector in the year ahead.
Northeast
Eric Zahniser
Managing Principal at Cresa
Conshohocken, Pennsylvania
Leasing velocity for industrial space in the Northeast is expected to be moderate through 2024, according to Eric Zahniser, managing principal at Cresa based in Conshohocken, Pennsylvania. While leasing activity may be lower, Zahniser said he is working on more user purchases than ever, especially on the part of manufacturing firms. The projects involve a mix of foreign direct investments and commercialization of new technologies, start-ups, and expansions by domestic companies. Also, given capital market conditions, Zahniser said this is an opportune time for speculative developers to sell facilities to users.
Zahniser said those industrial tenants that are in the market for leasing space are seeking longer average lease terms and specific building specifications, a trend that is being driven by automation. "I've never seen this much focus on automation for both manufacturing and distribution. Every week another large company announces plans to optimize their distribution network by focusing on automated facilities while closing older ones. Automation is the catalyst for many of our projects and it is shaping what our clients want in terms of building specifications, such as slab bearing capacity, slab levelness and power capacity," says Zahniser.
Though the most active players in the industrial sector continue to be third-party logistics providers, Zahniser said most 3PLs have excess capacity right now which is moderating demand to a certain extent.
"However, contract logistics projects are going out to bid, which will result in more transactions. The Northeast will always be a 3PL heavy market, due to the Port of New York/New Jersey and the population density. Amazon has absorbed more space than anyone in our market this year by a large margin. They have been very active," he said.
Read the full article in CoStar.