Rising shipping costs influence industrial real estate market
Amid a growing economy and greater consumer spending power, retailers are rapidly expanding their logistics networks, which expansion continues to strengthen the industrial sector, according to Marcus & Millichap’s Midyear 2018 Industrial Outlook report.
E-commerce sales rose 15.2 percent in the second quarter from a year earlier, accounting for 9.6 percent of total retail sales. Rising Internet sales are driving delivery costs higher as freight haulers approach their capacity, as well.
In addition, industrial deal flow grew at a greater rate than other property types on a year-over-year basis in the second quarter, while also bringing sales volume in the same quarter to a new high of $18.2 billion.
U.S. firms spent a record $1.5 trillion on shipping expenses in 2017, as increased demand has also pushed transportation costs higher. Companies are strategically combating the increased cost of delivering products by taking up more space in dense residential areas, bridging the gap between large distribution centers on the outskirts of major metros.
In terms of construction, in the first half of 2018, developers completed just over 112 million-square-feet of industrial space, with at least another 145 million square feet on tap for the remainder of the year. For 2018, supply growth surpasses the 255 million square feet delivered in 2017 by roughly 5 million square feet, recording a new high for the cycle.
The national industrial vacancy rate was the lowest reading on record at 4.9 in the second quarter, to support a 5.8 percent year-over-year increase to the average asking rent, which climbed to $6.78 per square foot.
According to the report, investors remain bullish on industrial assets, increasing activity across the nation. Primary markets remain a target, while many investors are now seeking assets in secondary and tertiary markets due to robust rent gains and balanced supply growth there.
