Strong Demand, Tight Supply Change Industrial Outlook

As the industrial sector sizzles, developers have started re-purposing obsolete assets such as vacant big-box stores and old office buildings, said Avison Young Chair and CEO Mark Rose.

Developers are also exploring multi-story industrial facilities, especially in areas close to population centers, Rose said in the Avison Young Spring 2019 Global Industrial Market Report. “In land-constrained metros, the redevelopment of obsolete assets like vacant big-box retail stores and aged office buildings is a growing trend that caters to demand for close-in storage, warehousing and distribution,” the report said.

Rose said the industrial market “continues to go from strength to even more strength” and noted investor interest in the sector grows unabated. “The forecast for the remainder of 2019 is that industry dynamics will continue to be positive, attracting investors and resulting in low yields and rising asset values,” he said.

The analysis called the industrial development pipeline “robust” in both product deliveries and new space under construction. But nearly all industrial markets remain significantly supply-constrained despite the construction underway, Avison Young said. All markets monitored by Avison Young reported single-digit vacancy rates, while vacancy rates fell or remained flat year-over-year in more than half of the industrial markets surveyed. “The strong demand and tight supply continue to put upward pressure on rental rates,” it said.

Earl Webb, Avison Young President of U.S. Operations, said sale prices for industrial assets rose 15 percent year-over-year on a price-per-square-foot basis. He noted investors have started looking to secondary markets to take advantage of their lower land and labor costs. “Still, overall sales volume for this asset class was, not surprisingly, driven by the country’s largest industrial markets, including Chicago and Los Angeles and the Inland Empire in southern California,” he said.

Webb said nearly all industrial markets remain supply-constrained. Industrial vacancy will likely remain in the single digits over the next 12 months even with new deliveries.