Industrial Real Estate Market

WHAT IS INDUSTRIAL REAL ESTATE?

Industrial real estate is an umbrella term for manufacturing, production, research and development, storage and distribution facilities. While industrial real estate is sometimes overshadowed by glitzier sectors like residential, commercial and retail, industrial real estate shouldn’t be overlooked as an essential enabler of global commerce and as a resilient, income-generating asset class.

Industrial real estate makes the global economy hum. Well-located, high-quality industrial real estate keeps the world’s supply chains working, enables trade and e-commerce, and ensures the efficient movement of goods from makers to markets.

AREN’T INDUSTRIAL REAL ESTATE FACILITIES LIKE WAREHOUSES MOSTLY USED FOR STORING STUFF?

No. Most industrial real estate facilities are dedicated to keeping the world’s goods in motion. Very few of the goods in industrial real estate buildings are in storage. Where industrial real estate buildings are used for distribution, their contents are in motion to retail stores, businesses, or end consumers through e-commerce fulfillment channels. Where industrial real estate buildings are used for manufacturing, their operations are often tuned for just-in-time production and distribution that keeps pace with end-user demand—which means relatively little inventory is left sitting in storage.

WHAT DRIVES DEMAND FOR INDUSTRIAL REAL ESTATE?

In short, everything. Consumption is the main driver of industrial real estate demand, which comes as no surprise since consumption accounts for the majority of all economic activity. Trade is another key driver of demand. Industrial real estate facilities are key nodes in the global trading system, allowing the convenient and efficient movement of goods through the supply chain to end consumers. Then there’s supply chain reconfiguration. In developing markets, companies are upgrading from smaller, outdated industrial real estate facilities to newer, larger industrial real estate buildings with modern features and upgrades. In all other markets, as the relative attractiveness of manufacturing locations and transit routes shifts, as new consumer markets rise to prominence, and as same-day and next-day delivery become the new normal, companies adjust nodes in their supply chains, driving demand for new industrial real estate buildings in new locations.

WHERE ARE INDUSTRIAL REAL ESTATE FACILITIES LOCATED?

There are two basic location strategies for industrial real estate. Much industrial real estate is located adjacent to key transportation hubs – seaports, highway and rail junctions and airports. Increasingly, in response to burgeoning e-commerce and consumer demand for same-day and next-day fulfillment, industrial real estate facilities are located in infill locations within or proximate to large population centers.

 2021 National Industrial Real Estate Market Summary

In Q3 2021, the industrial sector continued to perform impressively, as high levels of consumer spending demand more robust supply chains.
National Industrial Real Estate Market Summary: National industrial real estate trends for Q3 2021Fueled by a historic boom in household spending, the United States industrial real estate market has been racing to keep up with the white-hot demand of consumers for a large array of products. Some metros across the nation are struggling to keep up with tenant demand, leading to unprecedented levels of development in suburban markets that typically catch spillover demand. Vacancy rates continue to drop to record lows as rent growth hits a record high.

National industrial real estate trends

  • The United States’ average vacancy rate fell at the fastest pace ever recorded during Q3 2021 and currently sits at a record low of 4.6%.
  • Year-over-year industrial real estate rent growth is at a record high of 6.7%.
  • The fastest accelerations in leasing activity are in smaller markets with open land for development.
  • The national industrial leasing average is 80% above typical seasonal levels observed prior to the pandemic.
  • A record number of logistics facilities will be delivered from late 2021 to 2022.

The United States industrial market is sustaining its impressive performance, primarily fueled by the boom in household spending on consumer goods. For another consecutive quarter, vacancy is at a record low and rent growth is at a record high. Major markets across the country are struggling to accommodate record jumps in demand, causing more leasing activity in smaller markets with more open land for development.

National industrial real estate trends

  • Leasing activity is up 70% from the Q4 average observed pre-pandemic
  • Rent growth increased at a rate of 8% in Q4 2021 as the market witnessed increased demand with limited supply
  • In attempt to keep up with demand, developers across the country have been breaking ground on industrial construction projects at a record pace
  • Real estate investors unappeased with the uncertainty of office and retail markets are turning to industrial properties
  • Leasing activity has picked up in suburban markets as major markets struggle to meet tenant demand for industrial space

 

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