U.S. Industrial Demand Surges Leading to Record Fundamentals
The U.S. industrial market remains on a roll, as detailed in our Q3 2018 U.S. Industrial Market Outlook Report, with robust activity, record development, and all-time high occupancy and rental rates. Industrial real estate demand continues to be driven by a strong domestic economy and the need to modernize and expand supply chains to keep up with growing e-commerce retail sales. Occupiers are leasing both regional big-box facilities as well as last mile distribution centers in core and emerging markets throughout the country. As we look ahead, the short-term forecast for industrial real estate is robust, thanks to continued economic and e-commerce trends. Longer term, however, trade tensions and growing labor shortages loom as rising worries.
Key takeaways from this report include:
- Industrial activity surged in Q3 2018 with 76.5 million square feet of the net absorption, the third-highest quarter on record. This brought year-to-date overall net absorption to 203.6 million square feet, 11.3% higher than this time last year.
- Robust demand dropped the overall vacancy rate to 4.9%, the first time the U.S. industrial market has posted a vacancy rate under 5%. Low vacancies are driving up asking rents which finished the third quarter at an all-time record $5.91 per square feet per year for warehouse/distribution space.
- The Inland Empire continues to dominate year-to-date activity with 19 million square feet of net absorption for the year, followed by Atlanta, which led the nation in Q3 2018 with 7.2 million square feet of net absorption, bringing its year-to-date total to 14.6 million square feet. Indianapolis is the top performing emerging market in the country with year-to-date net absorption at 7.6 million square feet, the sixth-highest in the U.S.
- While e-commerce occupiers continue to get the press, they only made up 11% of the total industrial transactions signed in the past 12 months. The top industrial occupier remains 3PLs who signed 131 million square feet of bulk industrial deals (100,000 square feet plus) the past 12 months, 29% of the total transactions signed.
- Key indicators for industrial demand remain high, including job growth in the distribution industry. In September 2018, the three industries directly related to industrial real estate hit all-time highs for total employed in the U.S.
- Rail traffic across the U.S. continues to post strong fundamentals, with total rail traffic up 5% year to date. Seaports continue to boom with loaded inbound and outbound container volumes all posting solid numbers, with loaded inbound container volumes up 5.4% compared with the same time a year ago.
- Industrial investment activity is set to have a record year, as at the end of the third quarter $23.7 billion of industrial real estate was purchased. 14 of the top 25 markets for deal volume hit record levels through the first three quarters of 2018, with Chicago leading the way at $4.4 billion.