Commercial Investment Real Estate September/October 2018 | Page 27

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evelopers don’t show any signs of easing up on
new industrial projects, with steady demand
coming from both space users and investors
looking to acquire industrial assets.
Despite a big year of development in 2017, vacancy rates
continue to point to a healthy balance between supply and
demand. “Throughout this expansion period, develop-
ment has been very controlled relative to past cycles, so you
haven’t necessarily seen a lot of overbuilding,” says Aaron
Ahlburn, managing director of industrial and logistics
research for JLL in Los Angeles. In fact, JLL data shows
that the average U.S. vacancy rate dipped to 4.8 percent at
the end of first quarter, which is 260 basis points below the
low point in the last boom cycle that occurred pre-recession.
“We also have been seeing good pre-leasing rates. That
lends credence to the fact that a lot of the new develop-
ment is getting leased up at this stage of the cycle,” Ahlburn
says. As of first quarter 2018, JLL was tracking 230 million
square feet of industrial space under construction. Nearly
80 percent of that pipeline is dominated by small to midsize
buildings ranging from 50,000 to 500,000 sf.
Although e-commerce continues to garner much of the
attention in the industrial sector, demand for space is being
fueled broadly by strong consumer spending and steady
economic expansion. Consumers are shopping both online
and in traditional stores, which is spurring activity along
the entire supply chain. For example, Nashville is benefiting
from its strategic position as a logistics hub serving the east-
ern U.S. Nashville continues to attract major third-party
logistics providers including Geodis, XPO, and Federal
Express, as well as large retail distributors such as Amazon,
Lowes, and Under Armour.
“Nashville’s growth continues unabated,” says Sue Earnest,
CCIM, a principal at Avison Young in Nashville. At the
end of the first quarter, vacancies remained at a low of 4.1
percent, with about 3.9 million sf under construction. Proj-
ects are underway in almost all the surrounding counties
in Nashville by developers such as Panattoni Development
Co., Distribution Realty Group, Huntington, and Ridge-
line, among others. About 80 percent of the new space being
built is speculative, with leasing activity following the old
movie line from Field of Dreams, “if you build it, they will
come,” Earnest says.
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