The Industrial Market Boom’s Biggest Obstacle is Land Constraints and Zoning Issues
Based on a recent survey from Jones Lange Lasalle Inc., 43% of the 720 logistic real estate professionals surveyed considered limited availability of entitled land to the be the biggest constraint to developing new projects. The National Retail Federation predicts that non-store and online sales will grow between 18% and 23% this year, totaling between $1.09 trillion and $1.13 trillion. This growth will require changes by developers to get products to customers that are in high volume cities.
Because of land constraints, especially near larger cities, vacant retail properties that can be converted into industrial spaces are becoming more popular. As of July 2020, there were 59 retail-to-industrial conversions completed, proposed, or underway. That is more than double the conversion projects from July 2019. While growth is great, getting the sites entitled with the necessary zoning is very difficult. Most properties are zoned exclusively for retail or do not permit industrial uses. Zoning often becomes an issue because residents and city officials are concerned with things like truck noise and exhaust. Some developers are also looking into using these spaces for more than industrial use; they would like to repurpose vacant retail properties to include industrial uses, but not limited it solely such uses.
By far the biggest occupier of industrial space is Amazon. Amazon frequently develops multi-story warehouse building with robotic technology, and also builds taller to avoid needing more land. An increase in trailer storage, truck terminals and transloading facilities allows companies to organize their supply chain and also cut down on delivery times. However, zoning codes continue to make it challenging for modern warehouse facilities.
Recently, a 1.75 million square foot trucking terminal portfolio was sold. This portfolio included 53 truck terminals in high-profile industrial markets like Chicago, Atlanta, Dallas, New Jersey, New York and Philadelphia. Because trucking terminals are finite, investors are having to cast a wide net for opportunities such as secondary and tertiary markets.