Ecommerce continues to drive industrial real estate growth, according to the preliminary Third Quarter report by Jones Long LaSalle, which is in line with other recent reports (AA, 9-15-17, P. 1).
“Nearly 25% of total United States leasing demand came from ecommerce companies expanding their footprints in markets where they already had a presence,” JLL notes.
Year to date, the U.S. has absorbed nearly 165.6 million square feet. During that period, developers also delivered 181 million square feet, which JLL characterizes as “a clear sign” that demand is outstripping new supply.
This continuing demand has pushed up rents to an average of $540 per square foot, setting an all-time record, the company points out. Figured on an annualized basis, rents have increased 5.3%.
Northern California and New Jersey are some of the strongest markets for rent growth, with recent increases in double digits.
Almost 79% of U.S. markets are seeing rents rising. In Chicago and Dallas new completions exceed net absorption, offering tenants more supply solutions.
Almost 221.6 square feet of new inventory is under construction. Overall, pre-leasing was stronger than this previous quarter, with the pre-release rate for new deliveries at 54.2%, JLL reports.
Industrial vacancy remained relatively stable at 5.2% — the same level as the second quarter, according to the report.
“Given continued strong leasing fundamentals, both net completion and net absorption are on track to complete the year with more than 200 million square feet for each,” the JLL researchers say.
“In recent years, a focus on supply chain productivity has spurred growth in hot sectors like ecommerce, third-party logistics, and logistics and distribution, which in turn has helped in increasing demand for new modern industrial space.”
Capacity Tightness Persists
According to a new report from CBRE, the average availability rate for warehouses and distribution centers in the U.S. declined by 10 basis points (bps) in the third quarter, fueled by strong demand that once again has outpaced increases in new supply.
U.S. industrial availability registered 7.7% in the third quarter, down from 7.8% in the second quarter and from 7.9% a year earlier. This was the market’s 28th decline in the past 29 quarters, CBRE observes.
Data shows that Third Quarter net absorption of industrial space – a proxy for demand – at 61 msf, slightly less than the two-year average. Meanwhile, construction completions of nearly 51 msf during the quarter slightly exceeded the two-year average for new supply.
Jeffrey Havsy, CBRE Americas chief economist, says indicators point to sustained momentum in industrial market, including strong GDP growth and gains in warehouse employment.
“With growth expected to remain at a similar pace for the fourth quarter and into early next year, we expect demand to remain strong,” Havsy predicts. “The supply pipeline is increasing, but vacancy isn’t expected to rise dramatically, and the market remains fundamentally balanced.”
CBRE defines availability as the full amount of space available for lease, including vacant space and currently occupied space that is being marketed for occupation by other users. The current availability rate is the lowest since 2001.
In the third quarter, 33 of the U.S. markets that CBRE tracks registered declines in their industrial availability rates. Twenty-four markets registered increases and eight were unchanged.