Limited Options for Large Logistics Centers in Certain Distribution Hubs
The industrial construction boom, ignited in 2020 by a surge in e-commerce leases and favorable interest rates, has achieved unprecedented levels in the United States. Despite this, not every U.S. market is saturated.
Between 2022 and 2023, the total U.S. industrial property supply expanded by 1.3 billion square feet, an area comparable to 22,600 football fields or the entirety of industrial properties in metropolitan Chicago combined. This surge represents the fastest growth recorded for any U.S. commercial property segment in 24 months in over three decades.
Developers are predominantly focused on erecting massive projects, leading to a surge in availability rates for existing and under-construction logistics facilities exceeding 500,000 square feet. These rates have surpassed 20% in key markets like Indianapolis, Philadelphia, Phoenix, Savannah, and Orlando.
Nevertheless, several U.S. distribution hubs, including Detroit, Jacksonville, and Reno, face significant shortages of mega-warehouse space, defined as facilities exceeding 500,000 square feet. The recent slowdown in nationwide industrial construction suggests these shortages might persist beyond 2024.
Detroit:
Most industrial structures exceeding 500,000 square feet in Detroit serve as manufacturing facilities for major automakers or their suppliers. However, the region boasts over 41 million square feet of mega-warehouse properties, which has surged by 36% (10.7 million square feet) in the past three years. This growth is attributed to companies like Amazon, FedEx, and RGL Logistics, which have established new distribution centers exceeding half a million square feet.
Despite adjustments to its U.S. warehouse network since 2022, Amazon hasn’t listed any of its nine distribution facilities of this size for sublease. Higher short-term interest rates have also hindered the construction of large distribution centers. Presently, only one modern distribution center with contiguous space exceeding 500,000 square feet is available for lease in the Detroit metropolitan area.
Jacksonville, Florida:
While Jacksonville’s total mega-warehouse stock of 24.5 million square feet ranks 31st among major U.S. markets, it hosts several logistics facilities surpassing 500,000 square feet operated by companies like Amazon, Bridgestone, Walmart, and Wayfair. With increasing import traffic at Jaxport and rapid population growth in Florida, Jacksonville is emerging as a crucial distribution hub for retailers serving the Southeastern U.S.
Following Sam’s Club’s lease of 1 million square feet at Building E of VanTrust Real Estate’s Imeson Park South, no existing or under-construction properties larger than 500,000 square feet are available in the market.
Reno, Nevada:
Though Reno’s mega-warehouse stock is slightly smaller than Jacksonville’s, it benefits from lower corporate tax rates and wages compared to California’s major cities, along with its strategic location enabling quick access to the entire West Coast within a two-day drive. The local stock of mega warehouses has doubled over the past decade, driven by companies like Amazon, Chewy, The Home Depot, and Petco.
Despite increased availability of logistics space in the 100,000 to 450,000 square feet range due to recent industrial development, tenants seeking larger spaces face limited options. Building B at the USA Industrial Center is the sole existing property in the market offering available space exceeding 500,000 square feet, with Walmart’s lease set to expire in November 2024.