Within the industrial real estate market, the topic of continued demand outstripping supply remains exactly the same, according to data released this week by Los Angeles-based real estate developer CBRE.
CBRE explained that after a record year, in the US industrial real estate market in 2021, market conditions have moved into the first quarter, with strong demand for space remaining the common theme.
CBRE’s first-quarter results included:
– The overall vacancy rate in the first quarter was 3.1%, which indicates that tough market conditions have reduced uptake compared to the first quarter of 2022;
– Mesh uptake reached 93.8 million square feet, registering an increase of 10.4%, while remaining above the 10-year average;
– Construction completion rate was 86.2 MSF (with 62% pre-letted), up 27.5% annually but down 27.8% compared to Q4 2021;
Activity under construction was 545.4 MSF (with 32.5% pre-letted), Dallas/Ft. Worth, Atlanta, PA Corridor I-78/81 and Inland Empire making up a third of the total; And
Average required rent is up 3.7% sequentially and up 11.8% annually to $8.94 per square foot, a new record high.
“Demand from occupiers who need a secure stockpile to weather supply chain disruptions should lead to an increase in the rental rate and a record low vacancy rate despite there being a significant amount of new development this year,” CBRE said.
Matthew Wallazek, Director of Research, Industrial and Logistics at CBRE, described industrial property activity in the first quarter as good but not great, with continuing trends toward positive tailwinds driving the need for more space and demand again outpacing supply as it exits from Record year 2021.
It’s impossible to match, he said, “it was just a quarter of a commodity.” “Obviously the market is still on good foundations. From the investor side, it can be considered great, despite the high interest rates, and from the occupier side, there are of course challenges in terms of pricing. [from 2021] carried over, and companies continued to lease space in response to strong consumer demand. It’s really cool, because of what’s going on with inflation, and we’re looking at that more closely to see how that affects the demand for industrial space, in particular. “
Even with inflation soaring to a 40-year high, he said consumer spending remains strong, even though prices are rising sharply for many different things, which in turn are driving the need for more space, Walazik said, with the caveat. It’s a risk in the future but not in the first quarter.
Demand for industrial real estate space continues to be good for different types of occupants, Walazik noted, including 3PLs, general wholesalers, food and beverages, manufacturers, and big box retailers, collectively keeping the first-quarter vacancy rate at 3.1%. , which is well below the historical average of 5.9%.
CBRE noted that despite a significant amount of new supply in its industrial property pipeline, strong demand for first and second generation space is expected to keep availability historically low this year.
To this end, Walazek explained that tight market conditions are expected to continue, given the volume of demand there.
“We expect the vacancy rate to hover around current levels,” he said. “I don’t know if it’s going to go down much more, it might just go down. We’re about to hit a balance. In terms of rents, they’re going to keep going up, because in a lot of markets, there’s almost no space available. Rents have only one place to go, And that’s higher. We’ll continue to see double-digit rent growth, in relation to average net demand and then take rents to go up even higher. That paints a picture of that being a bit challenging for occupiers, but it’s still a very hot market.”
On CBRE’s list of net absorption of major markets, Chicago ranked first, at 10.6 MSF, followed by Phoenix at 9.0 MSF. The top five were Houston, Dallas/Fort. Worth and Charleston at 7.4 MSF, 6.6 MSF, and 5.4 MSF, respectively. For the markets with the largest area under construction, the top five markets were: Dallas/Ft. Worth, at 57.3 MSF; Inland Empire, at 34.4 MSF; Penn Pass/I-78/81, at 33.5 MSF; Atlanta, 30.5 MSF; Phoenix at 26.6 MSF.
About the author
Jeff Berman, Group News Editor Jeff Berman is Group News Editor at Logistics ManagementAnd Modern Material HandlingAnd Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and material handling sectors on a daily basis. Contact Jeff Berman