Industrial Market Finishes 2018 at Near Record Low Vacancies
The industrial real estate market’s vacancy rate closed 2018 at a near record low 4.9 percent, and e-commerce could further improve its performance going forward, analysts said.
“Given the industrial market remains at structural lows, rents continued an upward trajectory [at 4.7 percent],” said JLL, Chicago. “Additionally, the U.S. construction pipeline remains robust with new buildings continuing to break ground.” JLL reported the sector’s availability rate fell 10 basis points quarter-over-quarter to 7.2 percent at year-end.
Cushman & Wakefield, New York, said the industrial sector is undergoing a rapid transformation, “much of it brought about by online commerce which is forecast to grow by double digits throughout 2019 and beyond.” The firm’s North American Industrial Outlook report predicted North American industrial absorption will register a healthy 495 million square feet between 2019 and 2020, with 550 million square feet of new product delivered by year-end 2020. Net absorption will likely eclipse 245 million square feet this year then slip to the low-to-mid 200 million square foot range in 2020.
“Market conditions will encourage development in port-proximate markets, intermodal hubs and inland population centers, but supply will not overwhelm demand,” Cushman said.
Cushman said industrial real estate should remain a favored asset class among investors throughout 2019. “Industrial returns have outpaced those of the other property types and should perform favorably in 2019-2020 as industrial remains one of the few property types that could continue to see cap rate compression in a rising interest rate environment,” the report said. “Further, full adoption of the U.S.-Mexico-Canada Trade Agreement and improved trade relations between the U.S. and China could provide a tailwind for an industrial sector that has continued to fly high despite trade-related turmoil.”
Cushman predicted newly built warehouses will grow taller and smarter. “Tenants will begin to test and fill multi-story warehouses, with the industry learning a tremendous amount about their functional abilities and the rent premium tenants that occupy them are willing to pay,” the report said, noting retailers and the third-party logistic firms that service them will continue to prefer facilities within seven miles of major urban markets.
“Demand will continue to increase for a variety of building types, including urban depots, sortation hubs and cold storage facilities,” Cushman said. “Finally, because large tracts of entitled land will not get any easier to find, upward pressure on infill land pricing–and the premium placed on assembled, entitled land ready for development–will continue to increase.”
