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JUNE 14, 2018

U.S. industrial market reports record low vacancies, record high asking rents in Q1 2018

by Jody Barhanovich

The U.S. industrial sector continues to perform well, with robust net absorption, rent growth, construction and occupancy, all fueled by the continued growth of e-commerce and a solid U.S. economy, according to Colliers’ Q1 2018 U.S. Industrial Market Outlook Report.

E-commerce sales grew 16.4 percent in first quarter 2018 compared with the same time last year and now represents 10.5 percent of total non-auto retail sales. E-commerce will be a driving force in industrial real estate for the foreseeable future, said the report.

The national industrial vacancy rate remained at an all-time low of 5.1 percent as well for the second consecutive quarter despite nearly 53 million square feet of new supply completing in the first quarter of 2018.

Product under construction remained high at 231 million square feet, the second-greatest quarterly level on record, according to Colliers. Despite the large amount of development slated to hit the market in the next year, if net absorption stays at its current level, vacancies would increase 30 basis points over its current mark.

Tightening markets and new, higher-quality class A industrial space hitting the market, drove up asking rents for warehouse/distribution space to $5.46 per square foot per year in first quarter 2018, 5 percent higher than the same time last year and the highest asking rent on record.

Essential indicators for industrial real estate, including loaded inbound container volumes and intermodal rail volume, continue to move in a positive direction, the report stated. U.S. seaports are booming, with nearly all major locations posting year-over-year increases in loaded inbound container volumes. Rail traffic also remains robust as year-to-date volumes are up more than 2 percent as well compared with the previous year.

The Southern U.S. industrial market was the top region of choice for occupier expansion in first quarter 2018. More than 46 percent of the total net absorption in the U.S. occurred in the region, despite having only 31 percent of the existing warehouse stock. Three of the top five markets for net absorption in the country were in the region (Atlanta, Savannah and Greenville-Spartanburg-Anderson).

Growth in investor demand for industrial properties continues to surpass all other property types. Nearly $21 billion in industrial assets were purchased in the first quarter of 2018, 11 percent higher than the same period a year ago, while overall demand for commercial real estate fell. Thanks to two large transactions, portfolio sales increased by a whopping 84 percent while individual sales grew by 11 percent compared with the previous year, according to Colliers.

You can download the full research report here.

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