Dramatic Leasing Activity Ushers In a New Year of Highs for Industrial

The US industrial market rounded out 2021 with dramatic leasing activity across the board in the fourth quarter, with asking rents growing at near-record levels and capital markets volume reaching record territory at $160.3 billion.

A new report from Newmark signals that 2022 will be another blockbuster year for the sector, which has seen surging demand throughout the COVID-19 pandemic.

“Space to produce, warehouse, and distribute goods has been in high demand as firms race to keep up with consumption,” the report notes. “The construction pipeline grew to half a billion square feet in the fourth quarter of 2021. With such a record volume of space underway, deliveries should pick up in 2022, despite ongoing pandemic-related obstacles.”

Those challenges include the Omicron variant, as well as worker absenteeism that are blunting production, logistics, and transportation and tightening supply.

Absorption totaled 109.5 million square feet in the quarter, the third largest quarterly volume on record. Vacancy is at 4.2%, a record low, with all 49 industrial markets Newmark tracks posting single-digit vacancy in the fourth quarter. Los Angeles and the Inland Empire were tightest, at 1.1% and 0.8% respectively.

Meanwhile, asking rents grew by 2.9 to $8.82/square foot, a near-high, driven by a lack of available product. Deliveries of new product hit 68.8 million square feet, with markets like Los Angeles, the Inland Empire, Northern New Jersey and Miami showing the most annual rent growth in 2021. Asking rents in the Inland Empire grew by 29%, the biggest increase in the US. Nearly 500 million square feet is under development, representing 3.2% of total inventory nationally.

Industrial capital markets volume swelled to $160.3 billion, also a record high. That’s a 37.7% increase over the pre-pandemic high observed in 2019. Newmark experts say the volume was primarily driven by a high number of single assets and portfolio trading, in addition to record prices paid on a per-square-foot basis.

As we look toward 2022, Newmark predicts another banner year of expansion, “albeit slightly more conservative” than 2021.

“Demand for modern industrial space will remain elevated above pre-pandemic levels, as firms may begin to move from merely reacting to abnormal conditions in the immediate term to proactively focusing more on mid- and long-term growth strategy using lessons learned from the past two years,” the report states. They predict markets like the tightest vacancy rates below the national average like Southern California and Northern New Jersey will continue to experience the sharpest imbalances of supply and demand.