April 25, 2017

U.S. industrial market soars in first quarter with high absorptions, low vacancies, report says

Vacancy rate hits 5.3 percent, 300 basis points below 10-year average, Cushman & Wakefield says.

By DC Velocity Staff

The U.S. industrial property segment kept rocking in the first quarter, as markets absorbed 53.8 million square feet of space, above even the quarterly absorption average of 49.6 million square feet recorded during the current multi-year expansion, real estate giant Cushman & Wakefield (C&W) said today.

The nationwide vacancy rate fell to 5.3 percent in the first quarter, down 80 basis points from the first quarter of 2016. Vacancy rates are now 300 basis points below the 10-year historical average of 8.3 percent, C&W said. Rents rose in the quarter, on average, by 4.2 percent compared to the same period in 2016, with 71 of 79 markets tracked by C&W showing gains. Rents rose by double-digit amounts in more than one-third of the country, according to the C&W report. Rents in many markets are either at all-time highs or quickly approaching them, C&W said.

Atlanta reported the strongest absorption rate in the quarter, followed by Dallas/Fort Worth; California's Inland Empire east of Los Angeles; Cincinnati, and Chicago. The tightest markets in terms of vacancy rates were Los Angeles at 1.3 percent, followed by Orange County, Calif., California's Oakland/East Bay market, Cincinnati, and Savannah, Ga.

U.S. industrial demand has been spurred by the growth of e-commerce, which has led to the development of more and larger warehouses and distribution centers. A recent pickup in the global economy and international trade has provided a secondary boost. C&W joined the chorus of big developers expecting another banner year for industrial development.

Nearly 55 million square feet of space was delivered in the first quarter, mostly in major industrial markets and primary inland distribution hubs, C&W said. Speculative development, which was notably absent even as the market began to turn in 2010 and 2011, continues to pick up steam. In the first quarter, speculative projects under construction totaled 145.5 million square feet, making up two-thirds of the total square footage under construction.

"Construction continues to ramp up nationally, with U.S. groundbreakings up 24 percent since the fourth quarter of 2016, but the majority of speculative development remains concentrated in primary industrial markets, as does the most significant notable leasing volume," said Jason Tolliver, C&W's head of industrial research, Americas.

Tolliver said markets should not become oversupplied during 2017. If they do, it should first be noticed in primary markets, where big speculative projects are expected to come on-line, he said. Still, "there is no market where vacancy is poised to skyrocket due to pending deliveries," Tolliver added.

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