Industrial Taking Rents Are Blowing Past Asking Rents

First year base rents on industrial leases exceeding one year have been on a hot streak in 2021, with increases of 9.7% year-over-year so far. And in a fascinating twist, taking rents have eclipsed asking rents for industrial space exceeding 100,000 square feet, with bulk warehouses leading the charge.

CBRE’s James Breeze predicts that as industrial vacancy continues at near-record lows, taking rent growth will continue to push past asking rents at least in the short term.

“Consequently, taking rents will remain a better gauge of the market’s strength than more traditional metrics,” Breeze says.

Bulk warehouses logged increases of 13.2% for leases of 500,000 square feet or more and 11.6% for leases between 100,000 and 499,999 square feet, according to new research from CBRE. Conversely, asking rents for the largest spaces showed only a 0.2% change year-over-year in the first five months of 2021.

Overall, asking rents are up 7.1% year-over-year for the asset class. And coastal markets, cities near growing population centers and inland port hubs showed the largest growth for taking rents, with first-year base rents in Northern New Jersey up 33.3% year-over-year in May and Inland Empire rents growing by 24.1%. Both areas are longtime regional distribution hubs with some of the lowest vacancy rates in the US, which has increasingly led to bidding wars that are driving up rental rates, according to Breeze.

Demand for industrial space is predicted to continue to surge well into this year, with some analysts predicting absorption will surpass 200 msf in 2021. The sector was CRE’s best-performing asset class in the dark days of 2020, posting 40 straight quarters of positive net absorption at the end of the year. Moody’s Analytics predicts vacancies will continue to decline over the next five years, pushing up effective rents by 1.4% in 2022.