Newmark’s 3Q21 National Industrial Market Report — Unprecedented Macroeconomic Conditions Drive Record-Shattering Industrial Demand — offers a data-driven look into commercial real estate’s booming industrial sector, both locally and in the New Jersey market.
According to the report, the U.S. industrial market remained on an impressive trajectory of positive absorption, rent growth and new construction activity, as third-quarter absorption totaled 133.8 million square feet, the largest quarterly volume on record. Also, vacancy is at a record-low 4.6%.
The U.S. witnessed a COVID-19 surge in the third quarter of 2021, slowing the recovery of jobs and complicating an anticipated return to “normal.” By quarter-end, the dangers of the Delta variant appeared to be in steady decline, owing to several factors, including widespread vaccination. Throughout the pandemic roller coaster of the summer, economic forces supporting the U.S. industrial market remained resilient; in particular, retail spending was up 15.1% from a year ago.
Since March of this year, retail expenditures have spiked above the trendline that pre-pandemic spending would have forecasted. This metric likely has room to run through the end of the year, with the holiday season approaching and consumer pockets still lined with more savings than pre-pandemic levels, owing to government stimulus. The movement of vast volumes of goods to meet this consumer demand is stressing global logistics infrastructure, still beset by pandemic-related disruption. Despite an environment of shortages and delays, however, the U.S. industrial market’s capacity for expansion shattered a series of records set only a quarter ago.
Takeaways from the report include:
- Net absorption reached an all-time high of 133.8 million square feet nationally. Vacancy is at a record-low 4.6%. With vacancy so low, tenants with immediate occupancy requirements are facing a critical shortage of options in many markets.
- Retail spending was up 15.1% from a year ago. This metric likely has room to grow through the holiday season, with consumer pockets still lined with more savings than pre-pandemic levels, supporting further need for warehousing/logistics space.
- The construction pipeline has set a new bar for the past four consecutive quarters, increasing to 431.7 million square feet in Q3. This includes a record number of 1 million-square-foot-plus facilities under construction. And average asking rents increased by nearly 4% quarter-over-quarter (another record) to reach $8.62 per square foot. That’s an increase of 12.4% compared to one year ago. While the national industrial average asking rent increased dramatically in the past year, supply-constrained coastal port markets — including northern New Jersey — observed some of the sharpest increases during the past 12 months.
- Taking rents for recently constructed facilities in prime submarkets grew by more than 24% since 2019. With supply constraints not likely to start to ease until 2022, rapid rent growth is expected to continue, in prime submarkets as well as adjacent submarkets.
- Industrial asset values on an average price-per-square-foot basis have grown 12.6% year-over-year to a new high of $111 per square foot. In particular, land intended for future industrial development has seen remarkable increases. Average per-acre pricing on land purchased for industrial development increased 36% from mid-year 2020.