LOS ANGELES—Industrial's momentum kept the sector barreling through 2016, and Colliers International doesn't see the market losing step as it moves through 2017. The firm's newly issued fourth-quarter report says the driving factors behind last year's outperformance of every key indicator continue to support robust fundamentals in core industrial markets in the current year.

While e-commerce “has made industrial the darling of commercial real estate,” writes the firm's James Breeze, national director of industrial research, the sector likely would have performed well even without the turbo boost from e-commerce. Consumer spending was solid in 16, with retail sales completing the seventh consecutive year of growth, he writes. “Furthermore, nearly all major ports posted year-over-year gains in loaded inbound container volume—the most important seaport driver for warehouse demand.”

Nor will the benefits be limited to the major logistics hubs. “These key drivers will also expand demand in secondary markets near inland ports and large population centers and lead to a resurgence in demand for both manufacturing space and ex space in markets throughout the country,” Breeze writes in the Colliers report. 'Retailers, wholesalers and third-party logistics companies are all scrambling to find space near these locations to gain competitive advantage and get products to consumers faster.”

This year, according to Colliers, there are two primary product types to watch: manufacturing and flex space. Even before the election of Donald Trump, with his repeated call for bringing jobs back from overseas, retailers and wholesalers were evaluating reshoring as a means of counteracting rising freight costs and intellectual capital risks related to manufacturing in Asia. “As the pace of reshoring increases in response to shifts in government policies and, more importantly, consumer demand for ever-faster product access, demand will increase for manufacturing space and warehouse space that can handle a manufacturing component,” the report states.

The reshoring shift, along with an overall increase in demand for goods and a surge in production and new orders, increased the ISM Manufacturing Index to 56 last month, for its highest level in two years. While Colliers anticipates the need for manufacturing space increasing across the country, the firms says that markets with existing infrastructure and the right demographics will be first to reap the benefits.

In particular, Colliers cites Greenville, SC, Nashville and Ohio's three primary industrial markets—Cincinnati, Cleveland and Columbus—as markets to watch this year. “These markets offer distribution advantages but they also have the workforces, the inventories and the pro-business government environments to benefit from the manufacturing resurgence in the coming years,” according to the Colliers report.

Location will be the growth driver for flex space, which Colliers predicts will be “a star for both investors and occupiers in the coming year.” The attraction of location will be especially pronounced in areas near large, urban millennial populations who demand fast access to goods.

The push to service this population base will lead to a pickup in modern flex space construction or conversions of older industrial product within infill locations, says Colliers. Some of the markets with the demographics for increased demand for flex space in the coming year include the urban centers of San Diego, Los Angeles, Seattle, Minneapolis and New York City.

Colliers notes that the sector could also gain from economic policies anticipated in the coming years, with the caveat that “no new programs have been proposed yet, so any forecasts must be viewed as speculative.” A stimulus package of infrastructure spending and tax cuts would likely increase industrial leasing as a result of increased GDP and employment, while the planned infrastructure program and greater military spending could also provide direct benefits to the sector. The expected regulatory rollbacks in the energy sector could boost leasing, as well.

However, Colliers says the impacts of policy shifts are unlikely to be felt until late this year and into 2018, due to the time typically required to enact and implement legislation. It's also too early to tell whether changes in trade policies will represent tailwinds or headwinds for the industrial sector.

Nor will the benefits be limited to the major logistics hubs. “These key drivers will also expand demand in secondary markets near inland ports and large population centers and lead to a resurgence in demand for both manufacturing space and ex space in markets throughout the country,” Breeze writes in the Colliers report. 'Retailers, wholesalers and third-party logistics companies are all scrambling to find space near these locations to gain competitive advantage and get products to consumers faster.”

Instant Insights /

Watch Manufacturing and Flex Space This Year

Related Stories

Recommended For You