KEY FINDINGS OF A LANDLORD-FRIENDLY INDUSTRIAL MARKET
Written by: Zach Rines
As a Brokerage Associate, Zach specializes in industrial leasing and sales, in addition to contract work and negotiation. Keep reading to get his take on what’s happening in the Industrial market.
After observing incredible rent growth in a vast majority of industrial markets in the 1st half of 2022, there is not a better time than now to touch on the current day landlord-friendly industrial environment. Below is a summary of national vacancy rates, rental rates, and potential affects in the future.
Limited Supply Nationwide
While this is a topic well covered in some circles, it is still important to touch on why it matters as the macro-economic environment continues to bare question marks as we move forward. Over the course of the past 2 years, vacancy rates around the country have plummeted in the Top 25 U.S. industrial markets according to the one and only Amanda Ortiz, Colliers Director of National Industrial Research.
This is in large part due to huge amount of tenant demand as supply chain issues mounted globally and e-commerce took on a life of its own – with few signs of slowing down in the long-term. Those tenants could be well-known retailers needing to change their inventory practices to keep up with consumer demand, 3PLs, manufacturers looking to reshore their operations and more. Throw inflation into the fire and this leaves you with skyrocketing rental rates:
While it certainly isn’t “name your price” for many markets, landlords have the ability to stick very close to their asking rent, including with very reputable high credit tenants, and find creative ways to get their net monthly profit as high as possible, instead of worrying about sitting with a vacant building for months or years on end.
Rental Rates and Thoughts Moving Forward
Admittedly, it is nearly impossible to predict what will happen in the future, but the sheer scarcity of space, as well as buildable industrial land in some markets that are landlocked (for example the Inland Empire), makes for rates to continue to rise at their current pace to keep up with inflation and rising expenses.
On the flip side, as the macro environment continues to evolve, it is not hard to imagine some sort of a pull back on the industrial market, as tenant demand may begin to wane. Tenants are faced with rising transportation costs, an extremely competitive labor market and decades low consumer confidence as people continue to be hurt by rising prices. To add to the list, another potential issue for distributors has risen as a recently announced surcharge by Walmart (case by case) and Amazon (5% fee) on delivered/picked up goods are being put into place as e-commerce companies look to avoid continuously passing off costs to the general consumer.
Overall, it will be interesting to see what comes next nationally. While specific areas of the country see different situations, the Midwest may be set up to cope with any incoming disruption with the area being heavily targeted due to high prices in port cities and bigger markets. Columbus, Ohio in particular has set itself up as a very development-friendly, modern-day and tech-oriented growth market in hopes to continue to lure more name brand companies to the region.
Feel free to reach out anytime with questions or comments to Zach Rines.