Occupier demand weakens, and so does availability – Jones Lang LaSalle Big Box report
The new Big Box Industrial and Logistics market report from Jones Lang LaSalle highlights that occupier demand has weakened, with take-up of Grade A floorspace in the first half of this year at 6.9m sq ft coming in 52% lower than in the second half of 2010, and preliminary data indicating that this downward trend has continued during Q3. There have been fewer transactions, and the average size of deals has also declined.
JLL notes that speculatively developed space has accounted for a high proportion of transactions since the recession, reflecting the relatively high availability of this type of space and the very competitive deals that are often available. With the availability of speculative space now falling, JLL expects the balance of take-up for new space to move towards more built-to-suit deals. It cautions that occupiers seeking build-to-suit solutions should be aware of the longer lead times “and the higher rents and longer lease terms that typically prevail in this market”.
The report, which focuses on Grade A units of 100,000 sq ft or more, shows that despite the weaker take-up, availability has continued to decline. Overall Grade A availability fell by 8% between the end of 2010 and the midpoint of 2011, JLL notes, to stand at 28.2m sq ft.
Jones Lang LaSalle expects occupier demand to remain subdued given the economic conditions, but says that there are still some major requirements in the market. While the number of retailers active in the market has declined, some leading food and non-food retailers are still seeking new distribution centres, reflecting expansion into new regions, the rise in internet retailing, or the redesign of distribution networks. “The key is to understand the location drivers of occupiers and how these could be changing. In particular, the growth of internet logistics, portcentric logistics and intermodal logistics could all impact on location decision-making in the big box market,” the firm notes.
JLL expects “only very modest rental growth” in certain markets during the next 12-18 months. It says incentives will have to come in further before rents start to edge upwards. While the firm forecasts a “patchy” market recovery in the short term, it is still confident that this market “is supported by strong fundamentals in the long term”.
