C&W: Q1 Industrial Absorption Up Y-O-Y

Thorpe: “Consumers drive demand for industrial space and the consumer is feeling confident and spending.”

NEW YORK CITY—US industrial markets absorbed nearly 58 million square feet of space in the first quarter of 2016, up 9.3% from the first quarter a year ago, according to Cushman & Wakefield’s first quarter industrial report. This marked 24 consecutive quarters of positive net occupancy gains for the sector, placing the current expansion among the longest on record. It is also among the strongest. The US industrial market shed over 182 million square feet of occupancy during the economic downturn, but it has absorbed more than 990 million square feet in the expansion. The national industrial vacancy rate continued to decline in the first quarter, falling by 20 basis points from the prior quarter and 70 basis points from the prior year to 6.1%. Industrial vacancy is currently tracking at the lowest level of the past 30 years and is now a full 240 basis points below the 10-year historical average. “Going forward, the demand drivers for industrial remain firmly intact,” says Kevin Thorpe, Cushman & Wakefield’s chief economist. “Much of what drives demand for industrial space links to the US consumer and, by most measures, the consumer is feeling confident and spending.” He declares, “With the US economy now showing signs of shaking off the first quarter blues and with the US consumer on solid footing, the outlook for industrial demand remains robust. Our forecast calls for 2016 to be another year where net absorption surpasses the 200-million-square-foot mark and considering all that transpired in the first quarter, we are well on our way.” US industrial rents increased 3.8% in the first quarter compared to a year-ago. Industrial rents increased in 68 of 79 markets tracked by Cushman & Wakefield from the first quarter of 2015 to the first quarter of 2016, with over one-fifth of the country now reporting double-digit gains. In many markets, industrial rents are now either at their historic high or quickly approaching it, and on a national level we are witnessing rental rate appreciation for every industrial product type. “Logistics is becoming a competitive service business focused as much on shipping direct to customers’ homes as shipping to brick-and-mortar stores,” says John Morris, executive managing director of logistics & industrial services for the Americas. “Increasingly, businesses are doing their own e-commerce, and basic branded companies are trying to guide their businesses more online. The transformation that branded companies are undergoing themselves–developing a direct relationship with consumers–is expected to lead to significant requirements for new industrial space across the country.” On the development front, 51.7 million square feet of industrial product was delivered in the first quarter with the majority of deliveries coming online in major industrial markets and primary inland distribution hubs. Developers continued to break ground on more speculative projects in many markets. In the first quarter, speculative projects under construction totaled 109.9 msf, comprising 62.5% of the total 175.8 msf currently under construction. “Construction is certainly ramping up, but it remains well below what we observed at the peak of the last cycle,” says Jason Tolliver, Cushman & Wakefield head of industrial research, Americas. “During the period of 2004-2009, we saw the delivery of over 776 million square feet of product. Compare that to this expansion, where from 2010-2016 we’ve witnessed 566 million square feet of deliveries and historic absorption, and it shows that nationally we aren’t overbuilding yet. We believe leasing activity should keep pace with new construction in the majority of markets over the course of 2016.” In the first quarter of 2016, the top 10 strongest markets in terms of demand for industrial space were Dallas/Ft. Worth, with 6.8 million square feet of absorption; Central New Jersey, with 5.1 million square feet; Chicago, with 3.9 million square feet; the Inland Empire, with 3.7 million square feet; Atlanta, with 3.3 million square feet; Detroit, with 2.8 million square feet; the Pennsylvania I-81/I-78 Distribution Corridor, with 2.7 msf; Philadelphia, with 1.5 million square feet; Greater Los Angeles, with 1.4 million square feet; and Phoenix, with 1.4 million square feet. Among the tightest markets in terms of overall vacancy included Denver and Greater Los Angeles, at 2.2%; Orange County, at 2.8%; San Jose, at 3%; East Bay, at 3.2%; Cincinnati, at 4.2%; Milwaukee and Portland, at 4.8%; Miami, at 4.9%; and Detroit, at 5%.