E-commerce growth drives DC demand in smaller markets

The growth of e-commerce is driving demand for warehouse real estate in smaller, "secondary" markets across the U.S. as retailers expand their fulfillment infrastructure, according to a report released today by real estate and logistics services giant CBRE Group Inc.

Companies across the U.S. are seeking to expand their supply chain coverage by investing in DCs in regions beyond space-constrained top-tier markets, Los Angeles-based CBRE said in "Pent-Up Demand: Secondary Logistics Markets Poised for Accelerated Growth." The trend is sparking stronger demand in markets like Denver, Detroit, and Portland, where space is more abundant and less expensive, CBRE found.

The finding marks a change because most U.S. warehouse development since 2011 has occurred in "primary" industrial markets, such as Atlanta, Chicago, and Los Angeles, CBRE said. Over that period, 13 primary markets tracked by the company have seen a 30 percent increase in average rental rates, while the 17 U.S. secondary markets increased by only 13 percent.

Vacancy rates in primary markets have declined to 4.9 percent since 2011, while the secondary markets are still at 6 percent, according to CBRE data.

The trends show that average rents in secondary markets have now pushed past their prerecession levels, which is encouraging news for developers, who are calculating when to invest in this push to modernize supply chains, CBRE said.

"As infrastructure for e-commerce fulfillment expands, the industry will seek to expand its real-estate footprint in secondary markets to better cover a larger portion of population centers and increase delivery speeds," David Egan, head of industrial & logistics research for CBRE Americas, said in a statement. "As this unfolds, second-tier industrial markets like Cincinnati, Louisville, Charlotte, and others offer ideal market fundamentals for developers and e-commerce companies looking to expand their supply chains."