The industrial sector is booming nationally and on pace to show even stronger absorption and lower vacancy numbers than 2014’s banner year, according to commercial real estate services firm DTZ, which released its U.S. Industrial Trends Report at the halfway mark of 2015.
“Midway through 2015, demand for industrial space is poised to set another record,” according to the report.
Industrial asking rents in some markets have increased by over 17 percent since last year. Click for larger.
Absorption in the 60 major metros tracked by DTZ was 46.1 million square feet in the second quarter for a total of 86.5 million square feet through the first half of the year. That’s a 22 percent increase from the first half of 2014, and has driven industrial vacancy to a cyclical low of 7.3 percent.
“The industrial boom is occurring in nearly every region in the U.S.,” according to the report. “In fact, only 17 percent of the national market did not absorb industrial space in the second quarter.”
The boom isn’t just occurring among large industrial buildings in the sector either. The report notes that smaller industrial buildings between 10,000 and 50,000 square feet “are seeing rental appreciation exceed that of larger buildings in all of the top markets — sometimes by more than double.”
With high absorption and low vacancy, industrial construction has surged to keep up with tenant demand. New construction increased from 107.3 million square feet in the first quarter to 122.3 million square feet in the second quarter, even with 72.8 million square feet of deliveries as of mid-year — a more than 50 percent increase over the same period last year.
Despite such a feverish development pace, the report suggests all new construction could be absorbed within three quarters, “calming any fears of overbuilding.” Vacancies should continue declining throughout 2016, driving asking rents up, according to DTZ.
Asking rents are already rising at the fastest pace since 2008, with some markets showing a year-over-year increase of more than 17 percent for triple-net-lease rents.
“Assuming the economic script holds, expect industrial demand this year to exceed that of last year and reach nearly 180 million square feet, vacancy to drop below 7 percent and rental rate growth to continue to push upward more aggressively,” the report concludes.
Click here to read the full report.
— Jeff Shaw