Some U.S. Industrial Land Prices Doubled in 2017 per CBRE
CBRE report finds hot plots of industrial land in some major markets doubled last year.
One of the primary drivers of the real estate renaissance is the growth of online sales. The clicks have been getting the better of the bricks for several years now. But the great real estate realignment is not a one-dimensional story. There's disruption across the board, from top to bottom.
Amazon, for its singular part, started with books in the 1990’s–and put the big box bookstores out of business–but has since steamrolled numerous other segments. Amazon’s online dominance has crushed retail stores, taking down many malls with them. Now Amazon has set its sights on disrupting the massive grocery business, which may never migrate completely online but must evolve. The technology cycle has come full circle and now the line between online and physical retailing is beginning to blur. Amazon seems now set upon even greater plans for full-spectrum retail dominance from Amazon lockers all the way up to super-sized Whole Foods stores. It's already partnering with Kohl's stories, and speculation this week is it will buy Target next.
But Walmart is catching up to Amazon's lead with 60%+ quarterly online sales growth recently and there is wider adoption and normalization of online transactions that's trickling into every nook and cranny of commerce. Ironically, as the growth of online sales enters a more mature phase, the shallow fear that the internet would kill the physical world of commerce is giving way to the deep rumble of a record breaking real estate boom. It turns out that the internet is great for the real estate business, as in “never been better.” And this rattling reality is felt nowhere greater than in the industrial real estate space, where the growth of online sales is fuelling roaring warehouse demand.
Land prices are rising rapidly as supply struggles to keep up with rampant demand–especially in dense markets and the hubs that serve large populations. As it closed the book on 2017 CBRE research compiled Co-Star data to compute that in some segments the average U.S. industrial price more than doubled in a year’s time—from ~$50,000 to well over $100,000 for 50-100 acre sites (and nearly to $150,000). Infill sites for last-mile delivery also went vertical for a similar nominal gain—from below $200,000 per acre to well over $250,000.
At BL, we’ve noticed the market for large industrial sites activating in materially different and stronger ways in recent years. Numerous major megasite site selection processes have materialized amongst a diversity of end users and in many different regions around the county, some urgently. This wide scale, multi-faceted and multi-market site selection season has been unlike any other in North American recent memory.
Big projects are breaking ground at a record pace as billions of dollars are being deployed into the evolutionary new normal that is the real estate business is the 21st century. The tide of epochal e-commerce change is coming at scale and washing across the landscape leaving virtually no business untouched.
Supporting the backend of the new commercial reality is the greatest logistics machine ever built; growing ever larger with each ribbon cutting. As CBRE’s year-end report notes:
Bidding wars are becoming more commonplace. The price for some large hot plots of land have moved multiples from their price points merely 12 months ago, led by well-sited properties in hub markets such as Atlanta, Chicagoland, North & Central New Jersey and Houston.
These are also among the most active warehouse construction markets cited in CBRE’s year end report (shown right in Figure 2). It shows lease rates rising, but not enough to choke back the expansion. Not when the most recent Cyber Monday was the biggest in history by far.
There are still millions of miles of logistics network to refurbish, refresh and redevelopment before supply catches up with the modern shape and size of consumer demand. If there is a downturn, recession or mini-bust, it will only give the industry a chance to catch a break and catch its breath—maybe.
With multiple sectors rocking in record fashion—in a rare period of coordinated global growth so robust global manufacturers are struggling to keep up—any slack in activity in the industrial space may be picked up by a segment primed to take advantage of opportunities a pullback might afford. Just this morning, U.S. manufacturing accelerated to its best year since 2004.
Available land isn't the only resource constraint of growing concern. Employees are becoming very hard to come by. Layoffs of skilled workers is increasingly welcomed news, at least by other businesses—many of which are desperately hungry for high quality workers. Unlike most recoveries of the post-1970, the recovery from the Great Recession experienced sustained incremental gains in manufacturing employment.
With so many megatrends pivoting and megascale projects still filling up the pipeline—including who knows how many Tesla gigafactories or supermassive LNG-export terminals—there's still plenty of work to do. It's still early in the new "long cycle" as BL CEO's, Dan French, recently wrote in a follow up note to his Brownfields 2017 remarks:
With resource abundance, low costs and clear growth paths for multiple major sectors, the U.S. is in a strong position. The structural health of its economy is the envy of the developed world and its advantages going forward are substantial. The combined North American economy has emerged from the post-2008 recovery perhaps stronger than ever before, ideally positioned to win the economic future.
Its long forgotten industrial lands may stand to gain most of all.