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Industrial Maintains Record Absorption Growth In Q2

WASHINGTON DC 07.12.2017

THE FUTURE OF SOUTHEAST DC

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Deborah Ratner Salzberg -- Forest City Washington
Janet Davis -- Brandywine Realty Trust
Richard Ruben -- Ruben Companies
Industrial Maintains Record Absorption Growth In Q2

Industrial is one of the strongest sectors in CRE right now, beating expert projections for 2016 so far. Thanks to a few factors—including the rise of e-commerce—US industrial markets broke net absorption records in Q2 with their 25th consecutive quarter of net occupancy growth, up 6% to 70M SF of tenant-occupied space compared to Q2 '15. If we look closely at individual markets, 38 saw more than 1M SF of absorption in Q2.

Nationally, vacancy rates declined this past quarter, falling 30 bps to 5.8% from the prior year. According to a recent Cushman & Wakefield report, the industry’s chasing its lowest vacancy levels of the past 30 years. 

“I think there are several big drivers, the first being the phenomenal impact e-commerce has had in relation to fulfillment. It’s really driving demand, and in essence there’s a new user of industrial space,” Cushman & Wakefield VP Jason Tolliver (pictured) tells Bisnow.

Industrial

As both online and brick-and-mortar retailers press to get product to customers in a short time frame, companies are opening more warehouses and distribution centers to help to fulfill consumers' orders.

“What used to be two-day delivery is now delivery within a day and in some markets within an hour. It requires a difference of supply chains, and we’re seeing a lot of fulfillment facilities going up in areas where they can service multiple locations,” Jason tells us. “To deliver the product in a timely fashion and meet customers’ expectations, you need locations along that supply chain.”

The sector continues to see high rent growth fueled by strong tenant activity, with rents increasing by 4.1% in Q2 compared to the year-ago quarter. The 10 strongest markets last quarter included Inland Empire with 8.2M SF of absorption, Chicago with 7.3M SF, and Dallas-Fort Worth with 4.5M SF.

Last week, CBRE Americas head of research Spencer Levy said the sector has also seen a large injection of foreign money within the past year. “It’s really changed the way the industrial market has worked,” Spencer tells us. “Last year, foreign capital was the No. 1 investor in industrial for the first time, when historically industrial was not an investment-grade asset type.”