Editor’s Note: The “Future of Work” is a WRAL TechWire series, supported by commercial real estate firm JLL and other partners. Last week, the series looked at what’s happening in the Triangle’s economy.
Last week, the Future of Work series took an in-depth look at the demand for land, which has increased in the Triangle and can now be described as “insatiable,” while developers look to shore up their land positions.
The series continues this week and includes a LinkedIn Live broadcast on Tuesday, May 10, at 11 a.m.
This is a lightly edited transcript of an WRAL TechWire exclusive interview with two experts from JLL.
RALEIGH – There’s a race for space, and with vacancy at historically low levels in the industrial sector of the Triangle’s real estate market, that race may be accelerating.
That’s because demand, driven by logistics and e-commerce companies, remains high in a macroeconomic environment where inflation is pushing prices higher.
The rush toward e-commerce intensified in the months following the onset of the COVID-19 pandemic, and continued into 2021. And a new report from JLL found that while the onset of the pandemic pushed online adoption rates substantially higher than expected, leasing demand intensified in 2020 and 2021. Demand for industrial space is likely to remain high throughout 2022, the report concluded.
WRAL TechWire spoke with two experts in the industrial sector of the commercial real estate market, Al Williams, senior vice president, industrial at JLL, and Mehtab Randhawa, senior director, industrial research at JLL, who authored the recent report. The interview has been lightly edited for clarity and appears below.
Supply chain a factor
WRAL TechWire (TW): How are companies and organizations making decisions pertaining to commercial space, with regard to concerns or desired optimization around the supply chain?
Al Williams, senior vice president, industrial, at JLL (Williams): The most important part of the real estate process today is getting the space that fits your need, and when you need it. Many occupiers are increasing the amount of product required in active storage to prevent disruptions in their inventory via supply chain, thus dynamically altering their footprint needs.
The demand for industrial space is drastically outpacing today’s supply… and the pre-leasing statistics are representative of that.
TW: What concerns do companies have around the supply chain—what is happening, what has changed recently, and what do you foresee in the future?
Williams: The biggest concerns users are having is the construction timeline and the competitiveness for space.
Everyone has heard the horror stories of delayed delivery of building products slowing down the construction of their new premises.
Tenants are becoming more and more proactive. We’re in a market that used to advise users to start the real estate process 6-12 months before their lease expiration, now it’s closer to 12-14 months.
There are many more moving pieces to the industrial real estate landscape: for example, not only is it harder to marry a lease commencement to an expiration due to landlord delivery, there are also 2-4 other groups seemingly vying for the same space preventing you from having flexibility on when you start paying rent.
TW: What types of space, and in what locations, are in most demand?
Mehtab Randhawa, senior director, industrial research at JLL (Randhawa): The consumer trends that accelerated industrial demand growth in 2020—strong spending on goods and increased adoption of online shopping—continued to shape the market throughout 2021.
However, demand has diversified beyond the big e-commerce players that dominated the market in 2020.
Logistics and distribution companies and third-party logistics (3PL) providers, pressed to move record volumes of goods while maintaining competitive delivery times, leased aggressively to increase their networks’ capacity and efficiency.
Together, these industries accounted for nearly a quarter of total leasing volume in 2021.
From a location perspective, demand is strong in our Gateway port markets, but secondary and tertiary markets like the Carolinas are seeing record year-over-year growth in leasing and investment activity.
TW: What’s happening in the Triangle’s industrial sector?
Randhawa: Major metropolitan markets and population centers like New York, Miami, Los Angeles, and others, have seen record high growth in the industrial sector.
Due to the intense competition users (tenants) and investors are flocking to markets like the Triangle for investment or relocation opportunities.
We’ve also seen an increase in domestic migration patterns in the Carolinas. This will immensely help the logistics sector, as companies will move close to where people live.
TW: What else is important?
Williams: The adage continuously said in jest is that real estate directors used to come under fire for the deals they did, and now it’s the deals they don’t get done.
Randhawa: Powerful demand observed in 2020 and 2021 is expected to continue into 2022.
Rents are expected to rise as demand outpaces supply with increasing land values and inflated construction costs being allocated to end users. In the short term this property sector needs more available inventory to run properly and service future industrial occupiers.
Going into 2022 consumer adoption trends will continue to pave the way for future demand from industry leaders.
This editorial package was produced with funding support from JLL and other partners. WRAL TechWire retains full editorial control of all content.
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