Warehouse Construction Surge: 3M SF Broke Ground in Q4, Land at $196K/Acre
Tom Lynch
HOUSTON – Warehouses totaling more than 3.3 million square feet broke ground in Houston in the fourth quarter of 2017, highlighting a broader trend of rising industrial land values, according to CBRE.
Many of these new industrial facilities are being built on a speculative basis, CBRE reported, though Hines and Arch-Con Construction are developing a 600,000-square-foot facility for Emser Tile at Pinto Business Park.
Record container-ship activity at the Port of Houston, expansion in plastic pellet production, and the rapid rise of e-commerce retail have all helped drive demand in the industrial market. CBRE’s fourth-quarter industrial report noted that more than 8 million square feet of industrial space is currently under construction across the Houston area.
That heightened demand has pushed industrial land prices upward.
CBRE found that average land prices in Houston rose to $196,000 per acre, a 14 percent increase year-over-year. “With the current tenant demand in the Houston area, pricing is expected to continue to increase in 2018,” said Tom Lynch, a CBRE Senior Vice President who has worked in the Houston industrial market for decades.
The surge in demand for industrial land is not limited to Houston.
E-commerce-driven development of warehouses and distribution centers has produced double-digit year-over-year increases in industrial land prices across major U.S. markets, CBRE reported.
CBRE found that average prices for large industrial parcels of 50 to 100 acres—typically intended for large regional warehouses—rose to more than $100,000 per acre, up from roughly $50,000 a year earlier.
Likewise, industrial parcels of five to ten acres—often used for smaller infill distribution centers in urban and suburban locations—climbed to over $250,000 per acre this year, compared with about $200,000 a year ago.
“Escalating land prices are a big reason why new supply of U.S. warehouses and distribution centers hasn’t kept pace with strong demand in recent years,” said David Egan, CBRE Global Head of Industrial & Logistics Research. “This situation won’t go away any time soon, because the markets where distribution centers are most in demand—typically near or in densely populated city centers—have scant available land for industrial uses.”
CBRE also documented double-digit percentage increases in land prices in several other major industrial regions, including California’s Inland Empire (up 35 percent to $980,000 per acre), Northern New Jersey (up 17 percent to nearly $1.8 million per acre), Las Vegas (up 17 percent to $220,000), Chicago (up 16 percent to $250,000), and Atlanta (up 14 percent to $100,000).
In many of these markets, substantial gains in land values have coincided with rising average asking rents for industrial space.
