The U.S. industrial real estate market set new records across multiple key performance indicators, according to Transwestern’s third-quarter U.S. Industrial Market report.
Over 540 million square feet of net absorption was reported over the last four quarters, making it the first time in history that occupancy has increased by more than 500 million square feet year-over-year.
The third quarter posted net absorption numbers exceeding 158.8 million square feet, the largest quarterly increase since 2008, while asking rents ticked up to $7.11 per square foot (also a new high), according to Transwestern Real Estate Services. More than one-third of the 44 markets Transwestern tracks reported double-digit percentage growth year over year.
“We expect continued elevated net absorption, as pre-leased construction projects are delivered to the market,” said Matthew Dolly, research director at Transwestern. “Further, the boost in rents is making redevelopment opportunities more feasible, which will benefit both core and expanding markets such as Savannah (Georgia), Austin (Texas) and Pennsylvania’s Lehigh Valley.”
Currently, there are 636.6 million square feet of industrial space under construction nationally, nearly double the volume five years ago. Approximately 27% of this space is concentrated in six markets: Dallas, Phoenix, Atlanta, the Inland Empire in Southern California, Chicago and Philadelphia. When measured as a percentage of existing stock, the construction pipeline signals future expansion heavily concentrated in the Sun Belt.
Continuing the downward trend of the prior three periods, the national vacancy rate dropped to 4.7% in the third quarter. New Jersey, as well as the Inland Empire, Los Angeles and Orange County — markets situated near the country’s largest ports — posted vacancy below 3%, underscoring the need for creative property strategies for both owners and users of industrial space.
“The fourth quarter will further test the resiliency of the industrial sector, as ongoing supply chain issues will be exasperated during what is anticipated to be a strong holiday spending season, and could slow new and in-progress industrial projects,” Dolly said. “It is likely that e-commerce activity will only intensify over the coming quarters, increasing the attractiveness of properties in regions that have traditionally been considered secondary industrial markets.”
New Jersey ranked in the Top 10 in five of the six market fundamentals in the report:
- 4th-lowest overall vacancy rate: 2.7%, a historical low for New Jersey;
- 6th-highest year-over-year rent growth: 17.2%, shattering the previous level of 15.4% set in Q2 2017;
- 7th-most Q3 net absorption: 6.5 million square feet, setting a record for an individual quarter;
- 7th-most trailing four-quarter net absorption: 16.5 million square feet, most since Q4 2018;
- 7th-most industrial product under construction: 95% of the new product delivered to the New Jersey market through the first three quarters of 2021 is leased.