Logistics Leasing Sets Record in Q4

In the fourth quarter, the US industrial market posted its strongest quarter ever with 89.8 million square feet of net absorption, according to Cushman & Wakefield.

In 2020, the sector absorbed 268.4 million square feet, which was 11.4% more than the 240.9 MSF reported at year-end 2019. Warehouse/distribution space carried the US industrial market in 2020 by absorbing 267.4 million square feet.

In Q4, new leasing totaled 178.8 million square feet, which drove the annual total to an all-time high of 659.1 MSF. Forty-three of the 80 markets tracked by C&W posted year-over-year (YOY) increases in new leasing activity. Eighteen of those markets saw more than 10 MSF of net new leasing activity. And 42 markets saw more 5.0 million square feet of new leasing activity in 2020.

In the logistics space, new leasing hit 566.5 million square feet, representing 86% of all new leasing activity across all product types by the end of the fourth quarter.

As absorption increased, so did supply. In 2020, 352.9 million square feet of new product was delivered, which was a 5.7% increase YOY and the most space ever delivered as reported by Cushman & Wakefield. In Q4, 97.3 MSF delivered, which was the strongest quarter ever recorded. 

In Q4, the vacancy rate increased 30-basis points (bps) YOY to 5.2%. The rate remained flat quarter-over-quarter and is still 60 bps below the 10-year historical average of 6.6% for all product types. The tightest markets, which included Orange County, Nashville, Central New Jersey, Los Angeles, Tulsa, Philadelphia, Hampton Roads and Boise, reported vacancy rates at 3% or under in Q4 2020, according to C&W.

With tight markets and strong demand, rents grew 4.6% from the fourth quarter of 2019. In fact, Q4 posted a new record high rental rate for the US industrial market at $6.76 per square foot. Warehouse and distribution rents rose 5.6% during the same period, hitting $6.22 PSF.

The new construction pipeline reached 360.7 million square feet, which is yet another record high. Warehouse/distribution space constitutes 337.1 million square feet (93.5%) of what is in the pipeline, according to C&W. While developers took a brief pause because of COVID at the end of Q1, the pipeline expanded 5.8% over Q3 2020, which formerly held the record high. The Q3 pipeline was 6.6% higher than it was in Q3 2019.

In 2021, C&W expects net absorption to exceed 200 MSF in 2021. Supply, which should continue to outpace demand, will likely produce roughly 40% more space than can be absorbed. As this happens, C&W anticipates that the vacancy rate will rise 30-to-50 bps to between 5.5% and 5.7% in the next couple of quarters. Still asking rents should post positive YOY growth.

C&W isn’t alone in tracking strength in the industrial market in 2020. According to the Winter 2020 US industrial and logistics report from Colliers International, US industrial rents have increased by 5.6% year-over-year. Industrial rents continued to gain steam in the third quarter, rising 2.6% quarter-over-quarter to $7.21 per square foot.