JLL: The Race For Industrial Space
Industrial Park near Des Moines, Iowa.
The industrial market is struggling to keep up with growing demand, reported JLL, Chicago.
Demand for industrial space has grown 24 percent over the past decade, more than outpacing the 18 percent supply growth during that time, JLL said in a report, The Race for Industrial Space: Can Supply Keep Up?.
“Prior to the pandemic, a steady flow of tenants taking occupancy and projects being delivered to meet demand kept vacancy rates stable,” the report said. “But the pandemic shattered old consumer shopping habits and greatly accelerated online shopping. This ultimately sent shock waves down the supply chain system and contributed to an increase in warehouse demand as tenants grappled with ways to prevent a future shortage of inventory.”
Deliveries have started to rebound from the pandemic’s onset, but supply growth cannot keep pace. “Given the heightened demand experienced in 2020 and 2021 and the velocity at which it is going forward, we are starting to see the first wave of a supply crunch,” JLL said.
In addition, the existing U.S. industrial inventory is aging rapidly, JLL reported. Nearly three-quarters of industrial assets are 20 years old or more and more than one-quarter is 50 years old or older.
“Pandemic-related restrictions and a lull in new deliveries contributed to industrial inventory aging at a more rapid rate than ever before,” the report said. “To date, the average age of industrial product in the U.S. is around 42 years old. Sun Belt cities such as Las Vegas, Charleston, S.C., Inland Empire, Calif., and Austin, Texas have younger-aged buildings on average and a larger inventory of modern product from recent population growth. Similarly, some of the oldest assets are located in old manufacturing towns such as New York, Pittsburgh and Cleveland.”
Compared to newer facilities, older industrial assets typically have lower ceiling heights, fewer dock doors, limited trailer parking and larger footprints, JLL noted.
“To meet consumer delivery expectations, industrial users are adapting to older, smaller and less functionally sophisticated spaces as there are very few modern facilities within urban centers,” the report said. “With Class A industrial space only accounting for a small portion of total U.S. inventory, markets with a higher industrial building stock of second-generation facilities have an opportunity to repurpose and modernize them to fit the current needs of industrial users. By doing so, they will be able to facilitate future industrial occupiers and potentially absorb the increasing demand this property sector has been experiencing.”
Amid the competition for space, industrial property landlords are commanding a premium for rents. “We’ve seen a few isolated and unique situations where rents have increased by more than 50 percent year-over-year,” JLL said. “This trending environment with escalated rents is expected to continue over the next 24 months as deliveries continue to get pushed out and demand outpaces space availability. Intense competition for space will give landlords in the hottest markets the ability to hold space vacant if there’s a chance of landing a top-dollar tenant.”
