The current industrial real estate expansion is one for the record books, according to Cushman & Wakefield. U.S. industrial markets absorbed 63.6 million square feet (MSF) of space 2016’s final quarter, propelling net absorption for the year to a record-setting 282.9 MSF.
As of January, the industrial sector registered 27 consecutive quarters of net occupancy gains, placing this expansion among the longest ever.
It is also among the strongest, with net absorption for the past three years (825.5 MSF) surpassing the strongest period of occupancy growth in the prior cycle, 726.8 MSF from 1997-1999.
Over the past year, logistics-related warehouse vacancy has declined 130 bps, from 6.9% to 5.6%, despite the delivery of 156.8 MSF of new speculative product, Cushman & Wakefield notes.
Jason Tolliver, head of industrial research for the Americas, says economic data reflect an increasingly confident consumer, and given solid labor markets and firmer wage growth, consumer spending should power greater industrial absorption, particularly in regard to warehousing.
“Considering that consumer spending is a dominant driver of industrial demand, an optimistic U.S. consumer will be a boon to industrial leasing,” Tolliver explains.
“It’s also worth noting that other important industrial-related indicators, such as containerized traffic flows, manufacturing indices and business inventories demonstrate that the industrial market remains on a promising path.”
Ecommerce continues to structurally alter supply chains and drive robust levels of leasing that continue to keep pace with deliveries, Cushman & Wakefield says.
“Healthy demand from logistics and distribution users and supply constraints continue to fuel rent growth,” it says. “Industrial asking rents increased 3.9% in the fourth quarter compared to a year-ago.”
Industrial rents increased in 61 of 79 markets tracked by Cushman & Wakefield from the 2015’s fourth quarter to 2016’s, with more than a quarter of the country reporting double-digit gains.
On the development front, 232.9 MSF of industrial product was delivered in 2016, with 73.6 MSF of it coming online in the fourth quarter. Typically, such a robust development pipeline would rebalance supply and demand fundamentals and elevate vacancy, but these are not typical times, the company points out.
“While we are certainly all interested to see what the new Administration’s and new Congress’ policies could mean to the overall real estate market, the industrial business continues to be fueled by the fundamental changes in how Americans work, shop and live,” asserts John Morris, executive managing director of logistics & industrial services for the Americas.
Currently, there are 215.6 MSF of industrial space under construction. Although development remains strongest in major industrial markets, port cities and primary inland distribution hubs, nearly half of all U.S. markets currently have more than 1 MSF under construction.
Cushman & Wakefield says that in 2016’s fourth quarter the top 10 strongest markets in terms of demand for industrial space were Dallas/Ft. Worth, with 5.3 MSF of net absorption; Chicago, with 4.1 MSF; Houston, with 4.1 MSF; the Inland Empire, CA, with 3.6 MSF; and Atlanta, with 3.5 MSF.
They were followed by Memphis, with 3 MSF; Stockton/Tracy, CA, with 2.5 MSF; Nashville, with 2.5 MSF; the Pennsylvania I-81/I-78 Distribution Corridor with 2.3 MSF; and Columbus, Ohio, with 2.1 MSF.
Among the tightest markets in terms of overall vacancy include Los Angeles, at 1.4%; Orange County, CA, at 2%; East Bay/Oakland, CA, at 2.9%; Nashville, at 2.9%; Indianapolis, at 3%; Savannah, at 3%; Santa Clara County/San Jose, CA, at 3.3%; Stockton/Tracy, CA, at 3.4%; Charlotte, N.C., at 3.6%; and Seattle, at 3.8%.