Industrial Real Estate Exceeds Expectations

U.S. industrial real estate started 2016 ahead of expectations, as “robust” first-quarter demand lowered availability by 20 basis points to 9.2 percent, reported CBRE, Los Angeles.

CBRE’s Industrial MarketView report said the sector’s vacancy rate declined 10 basis points to 5.6 percent, its lowest point since 2002.

“The declines in availability and vacancy are being driven by a persistent gap between supply and demand,” CBRE said, noting that the 40.7 million square feet of space delivered during the first quarter fell well short of the 60.9 million square feet absorbed. “Demand has now outpaced supply for 23 consecutive quarters–the longest such streak in the market’s history.”

CBRE said U.S. consumers–who account for nearly 70 percent of the economy–feel relatively good. “Low oil prices and robust job gains have propelled confidence and household spending growth nearly to their highest levels of this recovery cycle [boosting demand for warehouses and other industrial properties],” the report said.

At the same time, the stark rise in the dollar’s value and a slowdown in China hurt exporters, making them less competitive relative to their foreign counterparts. “This has also contributed to a significant buildup in inventories,” CBRE said.

Avison Young, Toronto, Ontario, noted that while traditional manufacturing processes continue to make up much of the sector, the market has responded to e-commerce and other innovations with new approaches.

“Demand for new types of facilities and well-located sites is top of mind with developers, who are seeing potential renovation or redevelopment value in properties once considered obsolete,” Avison Young President Mark Rose said in the firm’s North America Industrial Market Report.

Rose noted that the rapid-order-fulfillment phenomenon–including’s growing same-day delivery process–drives both leasing activity and investment sales.

Year-over-year, industrial vacancy rates fell in 31 of 37 U.S. metros surveyed, Avison Young said. Virtually all U.S. markets recorded increasing rental rates, declining vacancy and pent-up demand for new industrial properties.

Avison Young President of U.S. Operations Earl Webb said the U.S. industrial sector outlook remains positive after another year of sustained employment growth and lower energy prices. “The need for additional industrial development is evidenced by low single-digit vacancy levels and strong leasing fundamentals across all major industrial cities,” he said.

Webb said the current landlord-favorable conditions should remain at least through year-end 2016 “and into 2017 despite the necessary uptick in construction that’s occurring.”