‘Mega box’ leasing deal activity remains strong, says JLL

While there were fewer large leases in 2018, JLL explained that logistics-related sectors still accounted for around 50% of total share for the year and was at levels similar to 2016 and 2017.

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The market for “mega box" leasing deal activity, for warehouses more than 1 million square-feet, is still going strong, according to research recently issued by Chicago-based commercial real estate broker .

JLL’s research highlighted that e-commerce or other logistics-related industries saw the most leasing activity for leases 1 million square-feet or higher, in 2018, with eight out of 16 leases for properties of this size having an e-commerce or logistics focus. Up next were traditional retailers, with three leases of that size.

While there were fewer large leases in 2018, JLL explained that logistics-related sectors still accounted for around 50% of total share for the year and was at levels similar to 2016 and 2017. What’s more, it added that smaller facilities, in the 100,000 square-feet to 500,000 square-feet range, saw the strongest leasing activity, although tenants “are continuing to seek mega spaces across a broad spectrum of industries,” also noting that leasing activity was evenly spread between tier I and tier II logistics markets.

In an interview, , JLL’s Industrial Research Manager, said in an interview that, while in recent years, e-commerce and other logistics-related industries have taken up more than or nearly half of all mega-box leases, the only reason there was a drop-off in the volume of large leases in 2018 was the increased activity in leases for 500,000 square feet and less.

“It seems that, post-recession, many of the large e-tailer companies filled out their national mega-box strategies,” Campbell explained. “Now they are now layering in the spokes for their distribution hubs, placing themselves closer to their consumers for faster delivery times. Consumers are continuing to expect faster and faster delivery times, which means that the e-commerce companies need to be closer to them. The mega-box distribution centers are holding all of the goods and servicing the spokes. The spoke centers, in turn, are servicing all of the surrounding customers—at their homes, offices, or wherever they get packages delivered—often using sophisticated algorithms to determine what goods are most popular.”

Looking at 2019, Campbell said she expects to see an overall slowdown in leasing, including a slowdown in e-commerce leasing activity.

“Tight coastal markets like San Francisco, New Jersey, Houston and Seattle are already reporting a slowdown in leasing activity—but it’s not driven by a fall-off in demand,” she said. “On the contrary, the slowdown is due to the lack of opportunities for tenants to complete transactions. Some Tier 1 market professionals are cautiously optimistic in describing 2019, as tenants wait to see whether a trade agreement can be reached with China. The need for space could benefit some Tier 2 markets that are seeing a stable construction pipeline with moderate rent growth.”

When asked in inventory, in the form of both warehouses and land, for logistics and e-commerce-related warehouse development is a concern at this point, Campbell said that is not likely to be an issue, as long as developers keep up with their current delivery pace.

“Sure, it’s a tight market with record-low vacancies, but deliveries are steady,” she said. “In addition to traditional warehousing, e-commerce companies, in particular, can turn to alternative types of warehouse space—i.e., conversions from non-industrial buildings and multistory distribution centers—to meet ever-growing needs and new types of consumer demand. These companies are always going to need space, especially in a robust economy, and they’ll want the newest buildings that are energy-efficient, can accommodate new warehousing and distribution technologies, and have higher clear heights to maximize cubic storage. New distribution centers are going to provide that. In 2019, we’re seeing concern about some markets being overbuilt, but near-term preleasing of new deliveries remains steady.”

About the Author

Jeff Berman, Group News Editor
Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman

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