Tight Vacancies Lead to Robust Development
E-commerce and third-party logistics users drive demand.
Demand from e-commerce and third-party logistics users is driving industrial absorption and keeping the overall vacancy rate at an all-time-record low. Development remains strong in core industrial markets and appears set to pick up pace with 216 million square feet currently under construction — the second-highest amount on record.
Looking forward, industrial fundamentals are expected to stay strong with low vacancies, higher rents and robust activity for the second half of the year.
- U.S. e-commerce sales grew 16% in Q2 2017 compared with the same time last year and now represent 9% of total retail sales. E-commerce will continue to be a driving force for industrial real estate in 2017.
- The national industrial vacancy rate remained at just 5.4% for the second consecutive quarter — the lowest rate on record despite 109 million square feet of new supply completing in the first half of 2017.
- Tightening markets and new, higher-quality Class A industrial space drove up asking rents to $6.15 per square foot per year in Q2 2017, 9.5% higher than the same time last year. The increased amounts of newer Class A product hitting the market will likely keep rents at record highs in the coming quarters.
- While fundamentals for big-box facilities (those larger than 200,000 square feet) remain strong, many occupiers are shifting toward “lean distribution,” which is creating significant demand for industrial product between 50,000 square feet and 200,000 square feet in many markets.
- Investor demand for industrial properties is growing, making industrial the only major real estate sector to post year-over-year sales growth in Q2 2017. More than $30.1 billion in industrial assets were purchased in the first half of 2017, 10% higher than in the first half of 2016.