Tightening market fundamentals are boosting construction activity, with space in the pipeline ending the first quarter at 125.9 million SF—the sixth consecutive quarter where construction exceeded the 100 million mark. Forty-five percent of the space in the construction pipeline is in the “Big 5” distribution markets of the Inland Empire (15.1 million SF), Dallas-Fort Worth (13.0 million), Chicago (10.1 million), Pennsylvania’s I-81/78 Corridor (10.0 million) and Atlanta (7.9 million). Increasing construction activity has heated up industrial land sales, which totaled $2.1 billion last year, up from $1.3 billion in 2013 and the highest level since 2007. First-quarter sales of $251.7 million were slightly behind last year’s first-quarter total of $279.0 million.
The average price per square foot of industrial land was $2.23 in the first quarter, up from $1.78 in 20141. This is well above the recent trough of $0.78 in 2009, but well below the pre-recession peak of $3.14 in 2007. Land prices can be much more volatile than building prices because land held for development generates little or no income to buffer price swings as the economy ebbs and flows. The industrial market will face some economic headwinds this year, as slower global growth and the rising dollar put pressure on manufacturers. However, the stronger dollar translates into cheaper imports, which will benefit industrial markets such as the Inland Empire, where imports are a major factor in demand for space. Moreover, the U.S. Commerce Department reported today that consumer spending surged 4.4% in the fourth quarter on an annualized basis, its strongest rate of growth in nine years, which will boost demand for warehouse/distribution space from retailers and wholesalers.
