An Increase In Industrial Supply Will Ease Demand Pressures in 2022

The frenetic pace of industrial demand has been the subject of much discussion as of late, with experts and occupiers alike fretting over whether the pipeline of new product under construction will be sufficient to offset that pressure. 

“Industrial markets across North America have been under intense pressure with little new supply and unprecedented demand over the past two years,” said Carolyn Salzer, Americas Head of Logistics & Industrial Research for Cushman & Wakefield. “This has put upward pressure on rents and driven demand for development land.”

But Salzer and her team of researchers predict increased supply in 2022 will help allay demand pressures. New research from Cushman & Wakefield suggests a projected 855 million square feet (msf) of absorption and new supply of industrial properties at 932 msf in 2022. 

The report also expects that for the ninth consecutive year in 2022, net absorption in the US will exceed 200 msf, and Cushman experts predict the trend will continue through 2023 and beyond.

Salzer predicts that by the end of this year, the North American industrial market will hit more than 507 msf of net absorption—the first time ever the market has surpassed 500 msf. But even with an anticipated near-record level of new supply expected to be delivered by year-end 2021, North American vacancy is still expected to hold at just 3.8% by the end of the year.

“The economic recovery and the accelerated buildout of e-commerce and 3PL last-mile facilities, fulfillment centers, and bulk warehouses will reinforce demand for industrial real estate. Although the COVID-19 pandemic brought on new challenges for the industrial market, with port congestion, materials shortages, and commodity pricing skyrocketing, the market has and will continue to excel,” said Salzer.

She notes that overall net rents are expected to end the year at $7.62 per square foot (psf), a whopping 8.5% above 2020 levels. 

More than 930 million square feet of new industrial space is expected for North America by the end of 2023, with more than 94% of those projects located in the United States. The Cushman team predicts that North American industrial asking rents will hit a new high of $8.72 psf by year-end 2023, and notes that “growth will be broad-based across many markets in all regions: all markets being forecasted will register positive rent growth from the year-end 2021 to year-end 2023.”  

“While we’re seeing some of the pressure come off on the supply side, the truth is the industrial markets are red hot, and any kind of cooling will take substantial time. Industrial will remain the most sought-after asset class for the foreseeable future,” said Salzer.

That’s especially true as all signs seem to point to demand continuing to pick up steam throughout the rest of this decade: a recent report from YardiMatrix predicts that retail sales, housing starts and personal income will all likely continue to grow at a rapid clip until the middle of the decade, allowing industrial demand to “continue unabated” for at least a few more years. The firm’s forecast calls for an annual increase in total industrial stock of between 2 and 2.3% over the next five years, netting between 350 and 370 million square feet of new space each year for a total of 1.8 billion square feet of new stock.