Colliers | Columbus
INDUSTRIAL MARKET OUTLOOK | Q2 2021
Written by: Amanda Ortiz
Amanda Ortiz is the Director, National Industrial Research on the National Marketing & Research team at Colliers. Based in Chicago, Amanda partners with national and local teams to deliver market intelligence initiatives and provide direction to drive national competitive advantage through research strategy, development and analytics. Check out her post on Colliers Knowledge Leader here.
U.S. Industrial Market Sets Records Halfway Through the Year
Led by core markets in Dallas-Fort Worth, Atlanta, the Inland Empire and Chicago, the U.S. industrial market continues to perform exceptionally well despite the pandemic-related challenges facing other commercial real estate sectors. The industrial sector has maintained robust absorption and development, record low vacancy rates and record high asking rents.
At the halfway point of 2021, the industrial vacancy rate had dropped 24 basis points from the previous quarter, as only 4.9% of the nation’s industrial space was vacant — one of the lowest rates on record despite an impressive 151.5 million square feet of new construction completed at midyear. Record-low vacancies drove projects under construction to an all-time high of 419.9 million square feet. Vacancy is expected to remain at record lows for the remainder of the year despite a further uptick in new construction.
Tightening markets and new, higher-quality Class A industrial space hitting the market drove up direct asking rents for warehouse/ distribution space to $6.54 per square foot/per year for the second quarter of 2021, another record. As the pace of development surges and demand for final-mile facilities increases, asking rents will continue to rise at a record rate.
E-commerce sales grew 39% in Q1 2021 compared with the same time last year and now represent 13.6% of total non-auto retail sales. E-commerce will continue to be the driving force in industrial real estate for the foreseeable future as the ongoing global pandemic has continued to fuel demand for consumer products purchased from the comforts of home. The mass appeal of quick delivery options and a vast selection of merchandise propels the need for industrial space to house and distribute goods purchased online.
New industrial supply delivered in the first six months of 2021 totaled 151.5 million square feet, down 15.9% from the 180.2 million square feet completed this time last year. While new supply didn’t quite meet 2020 totals, deliveries are expected to pick up by yearend with a full development pipeline through the end of the year. Nearly 420 million square feet were under development at the end of the second quarter, almost 30% more than what was under construction at this time in 2020 and 14% higher than the previous quarter. Amanda Ortiz, National Director of Industrial Research | U.S. Summary Statistics Vacancy Rate 4.9% Change from Q2 2020 -0.5% Markets with Lower Vacancies Compared with Q2 2020 61.8% YTD 2021 Net Absorption (MSF) 230.9 Markets with Positive YTD Absorption 68 YTD New Supply to Inventory 0.9% Under Construction (MSF) 419.9 Market Indicators Relative to Prior Quarter Q2 2021 Q2 2022* Vacancy Rate Net Absorption Construction Rental Rate** * Projected ** Warehouse rents Asking Rents (Per Square Foot Per Year) Average Warehouse/Distribution Center $6.54 Average Manufacturing Space $6.68 Average Flex Space $14.06 U.S. Research Report | Q2 2021 | Industrial Market Outlook | 2
While all indicators point to robust demand, headwinds are increasing in volatility, including labor shortages and land availability. Occupiers’ growing demand for labor in modern fulfillment centers combined with a dwindling supply of developable land could delay or lower size requirements in the coming quarters or shift requirements to markets with more ample labor.
Growth in investor demand for industrial properties continue to surpass all other property types. While core markets will prosper, look for the largest increases to occur in emerging markets near logistics hubs and infill markets with large population centers, as investors look to increase their last-mile industrial portfolios.
Year-to-date U.S. industrial investment sale volume increased approximately 10% over this time in 2020, and pricing reached its highest levels yet. Year-to-date transactions totaled $51.9 billion, while the average price rose nearly 25% to reach $120 per square foot. In fact, at Q2 2020, the portfolio and entity-level deals totaled $7.0 billion, a figure 13% above the average second-quarter pace set in 2015-19 for such megadeals and the sale of individual assets were 95% above the average second-quarter pace for the same time period.
The overall outlook for the industrial sector remains robust, especially in the near-term, thanks to a recovering economy and continuing e-commerce trends. And, in an effort to improve U.S. supply chains, the recently-passed $1 trillion infrastructure bill allocates $110 billion to rebuild many of the nation’s roads and bridges, which could shorten the delivery time of consumer products in the long-term.
Download the Q2 2021 Industrial Market Outlook.