Demand for warehouse space is hitting record highs, and that doesn’t appear to be abating anytime soon, according to the 9th annual Industrial Tenant Demand Study from JLL Industrial.
In the study that tracks 1,800 individual future tenant requirements needing over 600 million square feet of space, JLL found that future demand volume is up 22% year-over-year in 2021. Logistics and parcel delivery is driving that growth.
Right now, increased competition and lack of available space are keeping tenants in the market slightly longer than last year. While new to market transactions slowed slightly in 2020 due to the pandemic, new requirements increased by 27% this year as tenants readjust to meet consumer demand. In addition, requirements for manufacturing space rose 93% year-over-year.
“The driving factor in this uptick in demand is attributed to the reshoring of US manufacturing and the establishment of a US sourcing presence,” said Mehtab Randhawa, JLL Senior Director of Research. “Companies are realizing that long supply chains are subject to disruptions and higher costs, thus for certain products and industries reshoring makes economic sense, while mitigating risk.”
JLL says demand is more widespread across all industries than ever before. The pandemic has accelerated demand for home deliveries, logistics and parcel delivery in almost every region across the country. In addition, as more retailers enter home delivery, e-commerce now makes up nearly a fifth of all industrial demand.
In the study, JLL found that the number of new entrants to the e-commerce sector rose by 21% this year. With the anticipation that e-commerce will constitute 40% of all retail sales in the next five to 10 years, JLL Industrial expects demand for all related industries to continue to gain more share. There is also a lot of pent-up demand from traditional retailers, with 17% having an e-commerce need.
JLL found that Logistics and Parcel Delivery (L&PD) has been a growing focus on secondary and tertiary markets. As a result, after a strong 2020, it expects more L&PD leases to be executed in 2021 and 2022.
Food and beverage also saw tremendous growth, including in the Southeast. JLL expects this sector to continue to display strong growth as consumers keep ordering home delivery after the pandemic. That will boost the logistical needs of the industry.
Construction has also been booming over the last year, with demand for construction, machinery and materials companies rising by nearly 15 million square feet from 2020 to 2021. JLL expects the growing demand for housing to keep home builders and residential developers busy.
As demand increases for warehouse space, those facilities will also grow more sophisticated.
By 2026, warehouse automation should grow 14% and $30 billion by 2026, according to research house LogisticsIQ. While the US leads the way globally, Indonesia, Australia and the Philippines are catching up, according to JLL.
“Along with expanding their warehousing and distribution centers, automation is the greatest asset for businesses operating in an on-demand economy,” says Allan Frydman, JLL’s principal consultant for industrial.