The North American industrial market is in the midst of a record-setting run, registering some of the strongest leasing tallies and tightest market conditions on record. Across the continent, occupier demand for modern, functional logistics space remains red-hot. We expect this to continue. Between 2017 and 2019, Cushman & Wakefield anticipates the North American industrial market will post 655 million square feet of net absorption—which would place it among the strongest periods on record, second only to 2014-2016.
Much of the performance of the past few years can be attributed to the rise of eCommerce. In just five years, eCommerce distribution space demand has grown from less than 5% of North American leasing in 2013 to about 19-20% of all new leasing in North America—with it comprising an even higher share in the U.S. at about 20-22%. With online sales growing multiple times faster than overall retail sales, they will remain a powerful industrial tailwind. Leasing will also benefit from a much-improved global economy.
For the first time since the financial crisis, we enter a new year with a global economy that appears to have regained its footing. Synchronized global growth, stabilizing oil prices, increasing manufacturing activity, and greater trade flows offer reasons for optimism. They also suggest that the bumpy ride of the last three and a half years—during which major pullbacks in private sector investment occurred as energy profits plummeted, the scare of a hard landing in China arose, and consumer sentiment retreated—are reflected in the rearview mirror. This is especially good news for Canada and Mexico, whose economies rely more on exports as a source of growth.
On the upside, continued job creation, stronger wage growth, and impending tax cuts in the U.S., should buoy household wealth and spur stronger consumer spending. On the downside, the greatest risk to the industrial outlook is trade policy. Both downside and upside risks are becoming more regional with politics and policymaking key determinants of how the North American economy and industrial market will perform. The fate of NAFTA, and any resulting shifts in commercial real estate demand, will take time to unfold. Trade negotiations are seldom quickly accomplished, and even when an agreement is reached it can take months or years for the changes to take effect.
Putting it all together, there is still room to run in the current economic expansion and the party for North America’s industrial property markets is far from over.
Jason Tolliver, J.D.
Vice President, Americas Head of Logistics & Industrial Research
Economist, Americas Head of Forecasting
Analyst, Americas Logistics & Industrial Research
Stuart Barron, CPA, CA
National Director of Research, Canadian Markets
José Luis Rubí
Market Research Manager, Mexico