Logistics space in the United States is effectively sold out, according to the global industrial real estate giant Prologis Inc.
Demand pushed the vacancy rate to a new low of 3.9% in the third quarter, the company reported in its Industrial Business Indicator report. “What is available is increasingly more expensive,” the company observed. “Logistics customers must move fast to lock down space.”
U.S. net absorption reached a record high of 115 million square feet (MSF) in Q3 and 280 MSF year-to-date – more than double the same period in 2020.
“Extreme competition for modern product has pushed rent growth to a new record of 7.1% quarter-over-quarter,” Prologis said. “Even though construction pipelines are at all-time highs, construction delays and record pre-leasing point to persistent shortages of space.”
Demand is set to outpace new supply through the near term. Prologis forecast net absorption of 375 MSF and deliveries of 285 MSF for the full year.
The vacancy rate is expected to stay near its historic low through 2022, the report said. Elevated demand, rising replacement costs and low supply are likely to produce rent growth of nearly 19% in 2021.
“Looking ahead, we expect that market conditions will remain exceptionally competitive for customers looking to expand, making it essential to plan early and move quickly,” Prologis projected.
Construction starts rose to an all-time high of 120 MSF. Speculative construction drove most of that, representing roughly 88% of all starts in Q3. “We do not anticipate significant supply relief in most key locations,” the company added, noting that new supply is being concentrated in low-barrier secondary and tertiary markets and the outlying submarkets of inland markets.