Commercial real estate is maintaining nearly full capacity and rent levels in the face of current economic turmoil, says the international real estate firm Colliers in its report, “An Inside Look at the Top 25 U.S. Industrial & Logistics Markets.”
“As consumer sentiment begins to shift and economic uncertainty looms, the U.S. industrial market continues to be a bright spot in the commercial real estate landscape,” according to Colliers. “Moreover, momentum has yet to wane in the industrial sector since the beginning of the global pandemic early in 2020.”
(The company notes that for the 25 markets covered in its report, the composition by geography is heavily weighted toward the Midwest, where 35.3% of the markets it follows is most heavily concentrated. The South comes in second with 26.3% of all industrial inventory.)
None of the markets in this report had a vacancy rate that exceeded 8%, although Memphis came close at 7.3%. Robust absorption levels resulted in five markets posting vacancies lower than 3% — Greater Los Angeles, Columbus, the New York City Metro, St. Louis and Philadelphia.
It shouldn’t be surprisingly the top area on Colliers’ list turns out to be the Ports of Los Angeles and Long Beach, observes Amanda Ortiz, the company’s head of industrial research, when she spoke July 26 at the Third Annual GlobeSt. Women of Influence Conference.
“The surge of industrial fundamentals is driven by the Ports of Los Angeles and Long Beach, responsible for roughly 40% of all inbound containers into the U.S.,” Ortiz said.
She added that that the ports are continuing to work through the congestion of cargo ships waiting out to sea, something that can be easily viewed from much of the Southern California coastline. “While Midwest markets boast numerous logistics advantages, the proximity to overwhelmed U.S. ports is what’s driving rental growth.”
Colliers found that year-to-date new supply in the U.S. totaled 96.9 million sq. ft. It says record levels of product under construction will boost supply even further by yearend, as more than 581 million sq. ft. of industrial product were under construction at the end of the first quarter.
Four markets posted new supply greater than five million square feet: Atlanta, Dallas-Fort Worth, Phoenix and Greater Los Angeles. All of those markets had more than 30 million square feet under construction at the end of the quarter.
Overall occupancy gains in the U.S. totaled 108.8 million sq. ft., just 3% below last quarter’s record. With high demand for industrial space, not a single market included in the report posted negative absorption during the first quarter.
The top five markets for overall year-over-year increases were Portland, the San Francisco Bay area, Houston, Milwaukee and Minneapolis. Just four markets posted occupancy gains greater than five million sq. ft., indicating that demand is spread throughout the U.S. market and not heavily concentrated in just one area.
Year-to-date net absorption for the overall industrial market was just 3.0% below 2021’s total and totaled 108.8 million sq. ft.. The 25 industrial markets included in this report accounted for more than 70% of overall occupancy gains in the U.S.
Just six markets outside of the top 25 recorded positive absorption greater than two million sq. ft. – Reno/Sparks, Savannah, Las Vegas, Salt Lake City, Baltimore and San Diego.
Average U.S. asking rents for industrial properties increased for four consecutive years and measured $7.98 per square foot at the end of the first quarter – a 10.1% increase year-over-year and a 1.0% increase over the previous quarter, Colliers noted.
“With vacancies in many parts of the country experiencing record lows, limited space availability combined with increased labor and construction costs has pushed rents increasingly higher.