Net effective industrial real estate rents increased by a record 17.6% in 2021, with gateway locations recording the fastest rent growth, led by California’s Inland Empire at 58%, the industrial real estate giant Prologis reported last month.
Markets near major consumption centers – where units are larger, more available and relatively less expensive – posted some of the fastest growth rates in 2021, the company noted.
“We expect that strong demand will buoy rents in these markets, although an influx of new supply in outlying submarkets could slow the pace of growth in 2022’s second half or beyond,” Prologis said.
Infill logistics spaces located along the coasts recorded moderate growth in 2021 relative to pre-pandemic growth (which led the nation), according to the report on 2021 released last month.
“We expect infill properties to post faster rent growth in 2022 amid dissipating hoped for pandemic-related uncertainty (hopefully!),” it added. “With this would come the need for expanded ecommerce distribution networks.”
“Scarcity of land, coupled with ample investment capital for logistics development, will likely continue to support heightened competition for developable land,” Prologis said. Bidding wars for space are increasing as available logistics space drops and vacancies are at record lows.
Spiking construction costs and land prices produced record high replacement costs. Developers have had to increase rents to bring on much-needed supply.
Land prices are expected to extend the steep rise they have experienced over the past five years.
Record demand stems from a stronger economy and the rise of ecommerce, while retailers are boosting inventories to allow them to make timely deliveries.