Demand Continues to Outpace Supply Leading to Record Low Vacancies

The industrial market is rebounding from a relatively slow start to the year with just under 69 million square feet absorbed, the third highest quarter on record. Demand from e-commerce and third-party logistics users continue to drive demand, resulting in more than 183 million square feet of occupancy gains for the year, lowering the overall vacancy rate to 5.2%.

Looking forward, the industrial sector should continue to benefit from supply chain modernization brought on by e-commerce demand, although labor availability might prove challenging.

Key Takeaways

  • The U.S. industrial sector continues to far outperform all other segments in the industry, with record levels of absorption, rent growth, construction and occupancy, all fueled by positive economic drivers and structural shifts favoring warehouse space.
  • The national industrial vacancy rate dropped 0.2 percentage points (pps) compared with the previous quarter to 5.2%—the lowest rate on record despite more than 170 million square feet of new supply completing in the first three quarters of 2017.
  • Product under construction remained high at 222 million square feet, the second-greatest quarterly level on record. Accordingly, vacancies could rise modestly in coming quarters if absorption does not keep pace.
  • Tightening markets and new, higher-quality Class A industrial space hitting the market drove up asking rents to $6.32 per square foot/per year (psf/yr) for all product types in Q3 2017, 10% higher than the same time last year and the highest asking rent on record.
  • Essential indicators for industrial real estate, including loaded inbound container volumes and intermodal rail volume, continue to move in a positive direction. U.S. seaports are booming, with all major locations posting year-over-year increases in loaded inbound container volumes. Rail traffic also remains robust as year-to-date volumes are up more than 3% compared with the previous year.