Industrial Continued To Shatter Records In Q4

The US industrial market continued to shatter records in the fourth quarter, with absorption exceeding 500 million square feet and vacancy sinking before 4% for the first time in history to end the quarter at 3.7%, according to new research from Cushman & Wakefield. 

 “We are seeing unprecedented low vacancy and incredibly high demand for industrial space across the United States. Demand is outpacing supply by a wide margin—almost 50 percent—and new leasing activity totaled 879.9 msf, a new record. This level of demand put the market in place to see the first year ever of new leasing activity surpassing 800 msf at year-end,” said Carolyn Salzer, Americas Head of Logistics & Industrial Research for Cushman & Wakefield. “This continues to put upward pressure on rental rates, setting a new record of $7.39 per square foot.”

Rental rates are up 3.2% quarter-over-quarter and 9.5% year-over-year, according to Cushman data. The national average for net rents was $7.39 psf in Q4, up from 7.16 in Q3 and $6.75 in the fourth quarter of 2020. 

The under-construction pipeline also set records with 568.2 million square feet in development, 54% above 2020 levels. More than 178 million square feet of new leases were inked in Q4, down from 232 million in Q3.

“Developers are setting new records on the pipeline yet falling short of meeting demand for space when it comes to deliveries due to pandemic related issues, particularly for warehousing and e-commerce facilities,” said Salzer. “Until significant new supply is able to be delivered at the rate of demand, we expect tenants to continue to struggle finding the space they need. The market is as competitive as it has ever been.”

As industrial tenants scramble for space amidst an unprecedented shortage of suitable options, developers are increasingly looking to outside-the-box strategies—particularly in land-constrained markets. Those include office to industrial conversions, a trend that picked up major steam as of late. 

Newmark’s Liz Berthelette, Mike Laccavole, and Lisa DeNight noted in a recent report that since 2018, at least 45 office properties totaling 11.3 million square feet have been redeveloped or are in the process of redevelopment into industrial use. That activity is mainly concentrated in markets with tight vacancy driven by density and a lack of developable land. Their analysis indicates that the best office candidates for industrial conversion are older suburban assets with an average land area of 15 to 25 acres and located within four miles of a major highway.