Industrial Real Estate Market On A Tear

November 18, 2021

The U.S. industrial market set new records across multiple key performance indicators, according to Transwestern’s third quarter U.S. Industrial Market report. Over 540 million square feet of net absorption was reported over the last four quarters, making it the first time in history that occupancy has increased by more than 500 million square feet year over year. The third quarter saw net absorption of 158.8 million square feet, the largest quarterly growth since 2008.

Asking rents increased to $7.11 per square foot in the third quarter, with more than one-third of the 44 tracked markets reporting double-digit percentage growth year over year. It marked the first time the average asking rent for industrial space in the U.S. surpassed $7.00 per square foot, increasing from $6.98 per square foot during the previous quarter.

“We expect continued elevated net absorption as pre-leased construction projects are delivered to the market,” said Matthew Dolly, Research Director at Transwestern. “Further, the boost in rents is making redevelopment opportunities more feasible, which will benefit both core and expanding markets such as Savannah, Austin and Pennsylvania's Lehigh Valley.”

Currently there is 636.6 million square feet of industrial space under construction nationally, nearly double the volume five years ago. Approximately 27% of this space is concentrated in six markets: Dallas, Phoenix, Atlanta, the Inland Empire, Chicago and Philadelphia. When measured as a percentage of existing stock, the construction pipeline signals future expansion heavily concentrated in the Sunbelt.

Continuing the downward trend of the prior three periods, the national vacancy rate dropped to 4.7% in the third quarter. The Inland Empire, Los Angeles, Orange County and New Jersey – markets situated near the country’s largest ports – posted vacancy below 3%, underscoring the need for creative property strategies for both owners and users of industrial space.

“The fourth quarter will further test the resiliency of the industrial sector, as ongoing supply chain issues will be exasperated during what is anticipated to be a strong holiday spending season, and could slow new and in-progress industrial projects,” Dolly said. “It is likely that e-commerce activity will only intensify over the coming quarters, increasing the attractiveness of properties in regions that have traditionally been considered secondary industrial markets.”

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