Industrial real estate market conditions remain tight, with space in short supply, notes CBRE | Ezine Daddy

The ongoing theme of demand exceeding supply in the industrial real estate market remains fully intact, according to data released this week by Los Angeles-based industrial real estate developer CBRE.

CBRE said that after a record year in the US industrial real estate market, market conditions continued into the first quarter in 2021, with strong demand for space remaining the common theme.

CBRE’s first quarter results included:

– an overall vacancy rate of 3.1% in the first quarter, showing how tight market conditions reduced absorption compared to the first quarter of 2022;
– Net absorption was 93.8 million square feet (MSF), up 10.4% while remaining above the 10-year average;
– Construction completions were 86.2 MSF (with 62% pre-let stock), representing an annual increase of 27.5% but a decrease of 27.8% compared to the fourth quarter of 2021;
-under construction activities amounted to 545.4 MSF (of which 32.5% already pre-let), and Dallas/Ft. Worth, Atlanta and the PA I-78/81 Corridor and the Inland Empire, accounting for one-third of the total; and
– Average asking rent increased 3.7% sequentially and 11.8% annually to $8.94 per square foot, a new record high

“Demand from tenants who need safety stock to counteract supply chain disruptions should drive rental rates to continue to rise and a record-low vacancy rate, despite many new-build developments this year,” CBRE said.

Matthew Walaszek, CBRE’s Director of Research, Industrial & Logistics Occupier, described commercial real estate activity in the first quarter as good but not great, with ongoing positive trends driving the need for more space and demand that is once again outstripping supply while at the same time uniting Record breaking year in 2021.

“You can’t compete with that, it was just a commodity district,” he said. “It shows that the market is still on good terms. Investors could find this great despite rising interest rates, and users naturally face challenges in pricing. momentum [from 2021] transferred and companies continued to lease space in response to resilient consumer demand. It’s actually almost fascinating because of inflation and we’re looking at it closely to see how that’s affecting demand for industrial space in particular.”

Even with inflation at a 40-year high, he said, consumer spending remains strong even as the prices of so many different things are skyrocketing, which in turn is driving the need for more space, according to Walaszek, with the caveat that this the case is there is a risk going forward, but not in the first quarter.

Demand for industrial real estate remains healthy for various types of occupiers, Walaszek observed, including 3PLs, general wholesalers, food and beverage, manufacturers and large retailers, who collectively kept the vacancy rate at 3.1% in the first quarter, well below the historical average of 5.9%.

CBRE noted that despite a large new supply in the industrial real estate pipeline, strong demand for first and second generation space is expected to keep availability at historically low levels this year.

To this end, Walaszek explained that, given the high demand, continued tight market conditions are to be expected.

“We assume that the vacancy rate will remain at the current level,” he said. “I don’t know if it will continue to drop dramatically, it could still go down. We almost reach balance. Rents will continue to rise because there is hardly any space available in many markets. Renters only have one place to go and that is upstairs. We will continue to see double digit rental growth, even higher at average net and asking rents. That paints a picture that this is a bit challenging for users, but it’s still a very hot market.”

In CBRE’s list of net absorption for major markets, Chicago led the way with 10.6 MSF, followed by Phoenix with 9.0 MSF. Rounding out the top 5 were Houston, Dallas/Ft. Worth and Charleston at 7.4 MSF, 6.6 MSF and 5.4 MSF, respectively. For the markets with the most space under construction, the top 5 markets were: Dallas/Ft. Worth at 57.3MSF; Inland Empire, at 34.4 MSF; Corridor Pennsylvania/I-78/81, at 33.5 MSF; Atlanta, at 30.5 MSF; and Phoenix at 26.6 MSF.

About the author

Jeff Berman, Group News Editor Jeff Berman is Group News Editor for logistics management, Modern conveyor technologyand Supply chain management review. Jeff works and lives in Cape Elizabeth, Maine, covering all aspects of supply chain, logistics, freight transportation and materials handling on a day-to-day basis. Contact Jeff Berman

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