The Progress of Industrial Machinery

Rising Demand for Industrial Warehouses

For the modest warehouse, this is a golden era. Boxy, unadorned and often overlooked, these properties are suddenly in hot demand in many regions of the country, thanks in part to a growth in e-commerce as customer shopping habits, even in the house extensions sector, proceed online. Big names including Amazon and Walmart are snapping up space once reserved for manufacturers of office furniture and home floor.

For years now, consumers have been buying more goods online. According to the Census Bureau in the next quarter, on a seasonally adjusted basis e-commerce earnings topped more than $111 billion, or 8.9 percent of all retail sales. Industry forecasters anticipate e-commerce sales to keep on growing. Warehouses often reveal little about what goes on inside their walls, but the buildings make possible the rapid delivery which customers now expect from online retailers. They function as storage and distribution points for goods which range from auto parts and materials for hot water service repairs to pharmaceuticals. And warehouse projects have grown rapidly since 2010, forming a critical part of the employment base in communities throughout the country.

As developers try to keep up, they’re thinking up some unusual solutions, such as demolishing struggling malls to make way for sprawling industrial properties and building multistory warehouses. Craig S. Meyer, president of the industrial and logistics services team for the Americas in the commercial property company JLL, said that this is the best he has seen it in his 35-year career. There is little in the way of presently available warehouse space up for lease in various metropolitan areas, particularly along the coasts where land is premium. Nationwide, the vacancy rate stood at 5.2 percent at the end of September, lower than the average rate of 8.1 percent over the last decade, according to JLL. Asking rental rates hit a high of $5.40 per square foot this autumn.

Just outside of Cincinnati, two property development companies, Al Neyer and the Hillwood Development Company, recently put the finishing touches on a development known as the Hebron Logistics Center. Located on a 49-acre property several miles from the Cincinnati/Northern Kentucky International Airport in Hebron, Ky., the project contains a pair of enormous buildings, the larger of which covers over 589,000 square feet – the equivalent of about 10 football fields – and contains 36-foot-high ceilings. The smaller structure measures around 209,500 square feet. Both buildings, built on speculation that renters will emerge, are empty. The developers are betting that with the Cincinnati-area warehouse vacancy rate standing at 3.1 percent as of September with a second storey extension, according to JLL’s data, tenants will be glad to move in. The site’s proximity to the airport and the region’s highway network could be attractions for renters, too.

Cincinnati has historically had low vacancy rates, according to Molly North, chief executive in Al Neyer. She claims that from a programmer’s standpoint, this calls for more supply. She believes it’s also an indication that, as developers, we have not kept up with demand on the market. Before the job in Hebron, Al Neyer hadn’t developed a warehouse property in the Cincinnati area since 2007, according to Ms. North. As the market softened, leasing that evolution was a challenge. The business focused on other property projects with gas installations and repair instead.

Now, the company wants back on the market. Even as they attempt to rent the Hebron project, Al Neyer and Hillwood have purchased another parcel near the area’s airport and intend to build two more buildings with 1.7 million square feet between them. Construction on the first building is set to begin next April. Part of why the companies believe that they can finally fill approximately 2.5 million square feet of space is due to Amazon’s plans for the Cincinnati airport, which it will use as an airfreight hub with as many as 2,000 workers. Kurt Nelson, senior vice president at Hillwood, claimed that they already enjoyed the market before that but think it only adds another piece, another chance.

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