Consultants Forum Advertise
Subscribe
Area Development Magazine Current Issue

  • Free for qualified executives and consultants to industry

  • Receive quarterly issues of Area Development Magazine and special market report and directory issues

Subscribe Now
Renew

Area Development

In Focus: Demand for Industrial Land Surges

The exponential growth of e-commerce has, in turn, accelerated the need for both warehouse and data center space.

Q2 2022
As a zoning and land use attorney over the last 15 years, I have witnessed a lot of change. That change has been brought about by a host of factors including traditional — but increasingly less predictable — business economic cycles, the Great Recession, the affordable housing crisis, and the evolution of transportation technology and commuting options. However, in the last few years, some of the biggest land use changes in many parts of the country have been ushered in as a result of the seemingly insatiable need for warehouse facilities near large population centers.

Industrial developers face fierce competition from hyperscalers like AWS, Meta, Microsoft, Google, and Netflix who vie for the same industrial zoned land. As we all do more and more of our shopping online, work from home online, and basically live our lives online, development of the industrial and data center infrastructure needed to support the corresponding demand for the delivery of goods and computing power has struggled to keep up.

The Pandemic’s Effect
The pandemic influenced the demand for industrial space. U.S. e-commerce sales grew 41 percent from Q1 2020 to Q4 2021, requiring additional industrial infrastructure to support the delivery of goods to consumers. At the same time, supply chain issues caused tenants to improve their logistics networks. As the pandemic began, goods production was cut in anticipation of a massive drop in demand, and many factories had to shut down or reduce production as they sent home sick workers or were placed in lockdown. In turn, shipping companies reduced schedules in anticipation of a slowdown in demand for moving goods around the world. However, market scarcity, people largely stuck at home, and stimulus money led to a massive uptick in consumer demand that created bottlenecks at ports all over the world as logistics companies struggled to find enough truck drivers, dock workers, and shipping containers to keep things moving. U.S. e-commerce sales grew 41 percent from Q1 2020 to Q4 2021, requiring additional industrial infrastructure to support the delivery of goods to consumers.

Transportation costs make up 40–70 percent of a company’s total logistic spend, while rent only makes up 3–6 percent. This math led to a surge in demand for warehouse facilities to onshore product in warehouses and create more efficient logistics networks with last-mile facilities primarily in proximity to large population centers to access their customers quickly.

The increased demand from e-commerce and last-mile logistics users caused an influx of tenants seeking warehouses, and developers attempted to take advantage of rising rents. At the same time, data center users and developers snapped up industrial zoned land at record breaking $2M+ per acre prices.

Local jurisdictions have largely embraced industrial and data center development in many areas as a means of boosting employment and commercial tax revenue in underdeveloped areas or in suburban office parks that are struggling with low occupancy. After all, neither data centers nor warehouses generate school kids that need to be educated and data centers do not generate much traffic, so in many instances these facilities can win zoning entitlements a lot more easily than residential or mixed-use commercial projects. In the past, industrial’s low density product had been displaced by higher and better uses, but now it is the other way around.

Nearly every industrial development under construction is pre-leased, and numerous others in the planning stages are spoken for with build to suits. Demand Outstrips Supply
Despite jurisdictional support for industrial zoning, supply cannot keep up with demand, and developable land so close to large population centers is scarce. Nearly every industrial development under construction is pre-leased, and numerous others in the planning stages are spoken for with build to suits. Developers who underwrote $10 NNN rents are achieving $14 NNN rents upon signing leases with tenants, and institutional capital that once focused on office acquisition is now attracted to credit tenant leased industrial warehouses, increasing exit valuations.

These forces have brought new developers into the fold, causing land prices to soar and competition to be fierce. Additionally, the same supply chain issues that have driven greater demand for warehouse space have also added to construction costs (e.g., steel prices, roofing material). Nevertheless, higher rents and lower capitalization rates have kept industrial development attractive. This has resulted in a speculative building boom that shows very few signs of slowing anytime soon.

Podcast

Episodes
Apple Podcasts Spotify

Magazine

Issues
Area Development Magazine Q2 2026
Q2 2026

Receive quarterly issues of Area Development Magazine at no charge for qualified executives and consultants to industry.

Exclusive Research