Struggling Retailers Leads to Industrial Market Health

Warehouse leases are being vacated by struggling retailers, but this is actually helping the market supply.

The last few years has shown the market that eCommerce has created a boom for industrial real estate. The demand for industrial space has drastically increased, driving rates of vacancy to an all-time low. In certain LA submarkets, these lows are sub 1% creating an increased sense of urgency for those seeking more space.

What’s interesting is that fewer and fewer fulfillment centers are in need in order to supply brick and mortar store locations, so these brick and mortar closures are starting to turn into industrial downsizing.

“I represent some large corporations, and they have told me that because online sales are killing their business, they are cutting back on brick-and-mortar retail locations as well as the distribution and fulfillment facilities that support those locations,” Chris Jackson, an executive managing director at NAI Capital, tells GlobeSt.com. “I think you are seeing that across the board.”

Toys R Us is a perfect example of retailers closing all their stores. This then spills the industrial supply into the market, however other retailers are choosing to downsize their industrial needs as their brick and mortar locations shrink in certain areas.

“Some companies are trying to figure out how to downsize,” says Jackson. “They are finding that they need less industrial space. They are keeping a few facilities, and they are shutting the rest down.”

Building Size Demand

The most popular demanded building sizes are for midsize industrial boxes. These spaces are around 50,000 square feet.

“As retail users start to close, I think that could impact the market,” says Jackson. “Larger buildings have been sitting on the market for longer. In the bog box buildings over 100,000 square feet, even though there aren’t a lot of them, those big box buildings are beginning to stay on the market a little longer.”

The forecast from all of this is looking like there is going to be an increase in redevelopment industrial projects. Larger box buildings will be made into facilities for multi-tenants.

“I think the trend that you are going to start seeing is private individuals that own large buildings are going to sell, and the new ownership will divide the building into smaller spaces so that it can be leased out,” says Jackson. “So, the market will open up a little bit. It is hard to find one tenant for those large big box buildings.”