U.S. Industrial Fundamentals Defy the Usual Q3 Slowdown

Sector fundamentals powered forward to reach new heights.

While many expected more normal growth patterns for industrial real estate in the third quarter, sector fundamentals powered forward to reach new heights. Net absorption crushed the previous record, construction reached all-time highs and asking rental rates rose for the 13th consecutive quarter.


E-commerce sales grew 16 percent in Q2 2016 (most recent data available) compared with Q2 2015—a rate that dwarfs the 2 percent overall retail growth for the same time period.
At the end of the third quarter, only 5.7 percent of the nation’s industrial space was vacant, the lowest rate on record. Vacancies dropped in 82 percent of the markets we track compared to the same time last year, despite 62 million square feet of new supply completing in Q3.
Tightening markets and new, more expensive class A space drove up asking rents in Q3 2016 to $5.75 per square foot per year (PSF/YR), an all-time record for the country (not adjusted for inflation). Asking rents for distribution space increased year-over-year in 89 percent of the markets we track.
After a slow first half of 2016, an uptick in large portfolio sales helped increase transaction volume to $14 billion in Q3 2016, a 3 percent increase over Q3 2015. Single-building investors continue to push into secondary and tertiary markets, with sales increasing 11 percent compared with the same time last year.