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Competitive DC Growth Nationally Drives Need for Space Efficiency

Thomas Cutler | 26 January 2016

The Journal of Commerce reported that big-box distribution facilities of 500,000 to more than 1 million square feet are leading construction activity. These large-scale, modern warehouses give top retailers and distributors the economies of scale of operating under one roof, whether serving as national distribution centers or regional distribution facilities. These buildings feature wider column spacing, higher clearances and higher dock-high door counts.

The U.S. is on track to add 179.3 million square feet in new completions in 2015 and 228.7 million square feet of net absorption. “This means satisfied demand will continue to outstrip supply for the sixth consecutive year, and additional rent growth is likely,” JLL (Jones Lang LaSalle) stated. While this trend should continue into 2016, the gap between absorption and new completions will narrow as speculative groundbreakings increase, and nationwide a measure of equilibrium should be reached in 2017. To accommodate the demand, Bastian Solutions has 15 North American offices to service distributors anywhere in the U.S. with the newest locations in Chicago, Dallas, and Memphis, TN.

Key Industrial Real Estate Numbers

The Los Angeles industrial real estate market continues to lead the U.S. with the lowest vacancy rate of 2.5 percent, followed by Long Island at 2.7 percent, Denver, 2.8 percent, Orange County, California, 3.1 percent, Seattle, 3.7 percent and Portland, 4.2 percent.

The highest quarterly net absorption rate (total available facilities divided by average number sold per month) in the third quarter was recorded by the Inland Empire east of Los Angeles, with 6.69 million square feet. Atlanta was second at 5.21 million, followed by Chicago at 4.5 million, Los Angeles, 3.72 million, Philadelphia/Harrisburg, 3.13 million and Seattle, 3.11 million square feet.

California’s Inland Empire also led the U.S. with the highest under-construction space of 21.04 million square feet, followed by Philadelphia/Harrisburg, 18.61 million, Atlanta 17.03 million, Dallas/Fort Worth, 14.70 million, Chicago, 14.30 million, and Houston, 9.71 million square feet. JLL included commentaries on conditions in each of the 50 markets surveyed. Some highlights for inland distribution hubs include:

  • Atlanta, with brick and mortar retailers and e-tailers leading current demand
  • Chicago, with leasing activity for 10,000 to 80,000-square foot industrial properties at the highest level since 2008
  • Dallas/Fort Worth, with market dynamics shifting from landlord-favorable to an equilibrium point between new supply and demand
  • Memphis, where net absorption this year is expected to reach a 10-year high

Avoiding Expensive DC Moves

It is critical not to underestimate the impact of companies looking for large distribution space. This supply and demand paradigm is actually leading more companies to consider if they can squeeze out lean efficiencies and avoid expensive DC acquisition. Often existing DC locations can be made far more effective and achieve the same impact as acquiring more physical space. Clients work closely with Bastian Solutions’ experts throughout North America (and globally) to emphasize the importance of floor space savings including lean and efficient layout, goods to person systems, and dense storage. If expensive moves can be avoided during a highly competitive real estate market, while still achieving the throughput efficiencies required, then every effort must be made to explore the efficacy of staying put.

If you are considering re-locating or expanding your current facility, our consulting team can assist. Whether finding the right location or making your current facility more efficient, our consultants can help you determine the best solution. Learn more.

Author: Thomas Cutler


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