Posted on March 22, 2022 · Posted in Industrial / Flex, Investments

There is plenty of room for growth in the industrial real estate market, even after two years of increasing demand due to e-commerce, thanks in part to intermittent lockdowns.

A new report from Cushman & Wakefield shows that ​​rent growth for warehouses and logistics space could rise by more than 15 percent over the next two years as supply chain investments make it possible for Americans to shop from anywhere and rapidly receive packages.

Online sales grew by 14.6 percent in 2021, according to C&W, equaling about $870.8 billion in spending throughout the year. To accommodate this demand, e-commerce tenants leased 97.5 million square feet in 2020 and another 77.1 million square feet in 2021, according to the firm.

For 2020 and 2021 combined, C&W recorded 500 million square feet of absorption across the country, especially in Atlanta, Indianapolis, Chicago, and northern and central New Jersey as well as Houston.

“2021 did not see the growth level that 2020 did. However, it still grew 14 percent,” Carolyn Salzer, the head of logistics and industrial research at C&W, told Commercial Observer. “E-commerce accounts for roughly 40 percent of the positive net absorption that we saw at the year-end of 2021, which was a record year. We had never surpassed 400 million square feet of absorption, let alone 500 million.”

Up to 65 percent of total logistics costs come from transportation, and finding warehousing within 30 minutes of where goods are being delivered will therefore motivate the market. That makes it challenging for tenants to find space and manage logistics in urban centers, in the Northeast in particular, according to Salzer.

“The South just has so much more room to build and lease space; with the West we’ve seen very high vacancies in the Inland Empire and L.A., but other markets like Salt Lake City, Phoenix and Denver have plenty of room to grow. They’re not blocked in by the coast,” Salzer said. “I don’t think there will be a point where the Northeast out-leases the South or the West based purely on the inventory that exists there.”

In total, Salzer expects industrial absorption to grow to as much as roughly 800 to 850 million square feet by the end of 2023 with e-commerce continuing to dominate about 35 to 40 percent of the pie. In the e-commerce sector, C&W anticipates that occupiers will be paying higher premiums to rent Class A space over time.

In January, Savills released its own industrial market report claiming that overall vacancy rates across the U.S. reached a record low of 4.4 percent in the fourth quarter of 2021 while rents increased by as much as 20 percent in some cities. Nationally, there was about 652 million square feet of industrial space built in 2021, compared to the roughly 100 million square feet of industrial built in 2011, according to the Savills report.

 

Source: Commercial Observer

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