Last December, online consumer spending was so strong during the week preceding Christmas that UPS and FedEx could not deliver a significant volume of packages—claiming their supply chains were overwhelmed. While the incident generated negative news nationally, it actually indicates a positive economic trend: America is on the verge of a period of more profound investment in its factories and distribution centers.

Bolstering the idea that the United States is returning to historically competitive rates of growth is the ongoing surge in energy production, largely due to shale-related technological advances. Industrial production also has blossomed in light of unusually low natural gas prices. According to the Boston Consulting Group, 48 percent of U.S. manufacturers intend to return production to America primarily due to falling energy and transportation costs and the opportunity for improved quality control.

Infrastructure advancements have been catalytic as well, including the widening of the Panama Canal and the Port of Miami’s $2 billion capital improvement program to triple containerized cargo by 2034.

Real estate data from various sources lend credibility to the notion that investment in America’s supply capacity and supply chain is set to surge. According to CBRE, a commercial real estate and investment firm, demand for industrial space continued to expand during the third quarter of 2013, with the national availability rate declining 0.3 percent on a quarterly basis to 11.7 percent. In recent months, the Midwest has been the most active region, with the availability rate slipping 50 basis points to 9 percent. Midwestern performance primarily was driven by expanding auto production and logistics/warehouse users in Detroit, Cincinnati and Indianapolis.

According to Jones Lang LaSalle, 45 of 48 U.S. markets experienced positive net industrial market absorption during the third quarter of 2013 and 35 experienced rent growth, an indication of growing scarcity. Markets associated with the lowest total vacancy include New York (1.2 percent), Salt Lake City (4.7 percent), Houston (4.8 percent), Denver (5.2 percent), Los Angeles (5.2 percent) and Orange County, Calif. (5.4 percent).

CBRE also reports new construction completions totaled 20.3 million square feet nationally during the third quarter, up from 15.3 million square feet during the second quarter.Houston and California’s Inland Empire continued to pace the nation by delivering 2.5 million and 3.3 million square feet of new construction, respectively, during the third quarter of 2013. At that time, there was approximately 47 million square feet of Class A industrial space under construction nationally, 15.1 million square feet of which is being built speculatively—mainly in New Jersey, Phoenix and the Inland Empire.

The years of tentative, wait-and-see development appear to be over. In the Greater Los Angeles area, more than 2.9 million square feet of industrial product was under construction as of the third quarter of 2013, the majority of which was speculative. Similarly, in the Chicago area, roughly half of the 5.5 million square feet under construction was being built on a speculative basis.

Industrial construction activity in Houston continues to rally. CBRE states construction levels spiked to 9.9 million square feet during the third quarter, reflecting increased demand from the energy sector as well as manufacturing and logistics services firms, specifically e-commerce users.

Energy remains a frequent source of investment motivation. Among the 10 largest upcoming manufacturing and warehouse construction projects highlighted by Reed Construction Data were the Hyperion Energy Center in South Dakota, the Sasol Gas-to-Liquids Facility in Louisiana, the Mesaba Energy Project in Minnesota,the Rio Mesa Solar Electric Generating Facility in California and the Applied Natural Gas Plant in Texas.

Sensing expanding demand and property valuations, investors are scrambling to acquire industrial properties. According to Jones Lang LaSalle, sales of warehouse and manufacturing properties totaled $10.1 billion during the third quarter of 2013, up an astonishing 81 percent on a year-over-year basis. More than 1,000 properties were sold totaling 185 million square feet. They traded at an average price of $54.46 per square foot, up nearly 4 percent from a year earlier.

Investor demand for Class A space is estimated to outweigh available supply by nearly 4 to 1. That implies significant new volumes of industrial space construction going forward. The pool of buyers has become remarkably diverse and includes private equity funds, non-traded REITs, pension funds and foreign equity sources.

It is as if the United States has gone into overdrive trying to augment its “nation of consumers” reputation. Increasingly, America is becoming a nation of producers, particularly in energy-related segments. The recent failure of the supply chain to keep up with consumer online purchases also signals additional investment going forward. The national industrial construction outlook has not been this positive in many years. 


Anirban Basuis chief economist of Associated Builders and Contractors. For more information, visit www.abc.org.