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Q122 Industrial: Lower Availability, Higher Rents

The Q1 2022 industrial sector summary can be best summed up by JLL: “U.S. industrial fundamentals continue to break records.”

In analyzing the industrial sector, brokerage experts pointed to the same issues: Scarcity of space, close to “full” vacancy, double-digit rent growths and furious demand outstripping supply, despite a construction pipeline that is pumping out a great deal of product. According to Newmark: “. . . the national industrial market is starved for space and numerous major markets have little to no immediate occupancy opportunity for tenants.” Additionally, competition for space has pushed rent growth beyond “the nation’s high inflation rate. . .”

JLL agreed, pointing out that the most activity has taken place among 3PL, logistics and distribution and construction material/building fixture occupiers. Speaking of construction materials and labor, supply chain congestion and disruptions are impacting the construction of new space.

Meanwhile, global supply chain disruptions are leading manufacturers to rethink their processes. As a result, “manufacturing demand growth will be a trend to watch for economic development organizations and industrial developers,” Newmark analysts point out.

And all of this is taking place in an environment of uncertainty. Noted Savills: “Inflation and oil prices continue to challenge consumer and occupiers, while online sales have started to flatten as Americans return to pre-pandemic routines.”

In terms of forecasts, CBRE believes that—once again—supply chain disruptions will fuel occupier demand for safety stock, leading to “further rental rate appreciation and a record-low vacancy rate, despite a large amount of new development this year.”

Cushman & Wakefield researchers agreed, pointing out that “robust demand for industrial space will continue into the rest of 2022 and 2023.” Also possible is faster deliveries as some of the pandemic-related supply issues ease.

But the JLL analysts aren’t as optimistic, pointing out that “the massive construction pipeline signals significant supply growth on the horizon, but the pace of deliveries will likely continue to be hampered by material and labor shortages.” In the meantime, while a well-diversified tenant pool is suggesting sustained demand levels in the near term, “the primary barrier to demand growth is the limited availability of space to absorb,” note the JLL researchers.

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