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U.S. Industrial Vacancy Rate Hits Record Low in 2017 as Technology, Consumer Tastes Change

IRVINE, CALIF. — Industrial vacancies hit an all-time low in 2017, as changes in technology and consumer habits drove demand for distribution and warehousing space, according to Ten-X Commercial’s U.S. Industrial Market Outlook.

The biannual report indicated that the national vacancy rate declined to 7.3 percent in 2017, its lowest level since the Irvine-based online real estate transaction platform began tracking the sector in 1999.

In addition, the report showed that 2017 was the sixth straight year during which rent growth accelerated, and the first year on record in which the industrial sector’s rent growth outpaced that of the other three major commercial real estate sectors (office, retail and multifamily).

“Right now, industrial is the cream of the commercial real estate crop, and the trends driving the sector — including e-retail, cloud computing and legalized cannabis — show no signs of abating,” says Peter Muoio, chief economist at Ten-X.

The California metros of Los Angeles, San Jose, Oakland, San Francisco and San Diego are Ten-X Commercial’s top five markets for industrial investment, in part because they are at the epicenter of the cloud computing and legalized cannabis industries.

“These new growth drivers are joined by the more traditional ones of recovering industrial production, capacity utilization, capital goods orders and trade, which have fueled vacancies and the broader health of the industrial sector to previously unseen levels,” says Muoio.

Ten-X determined that Dallas, San Antonio, Houston, Cleveland and Baltimore are the five markets where investors should consider selling industrial properties. These markets struggled with either heavy supply pipelines, waning demand or a lack of fundamental growth drivers, according to the report.

Looking ahead, Ten-X forecasts industrial demand will remain healthy throughout 2018, with more than 10 million square feet of projected net absorption. By year-end, the U.S. vacancy rate is projected to tighten an additional 30 basis points to an even 7 percent.

Despite an overall positive outlook, trade policy uncertainty is the single largest threat to the industrial sector. According to the report, any aggressive implementation of import tariffs on goods could hamper industrial production and demand, while also fueling inflation.

Ten-X Commercial is a leading online, end-to-end transaction platform for commercial real estate. Since 2009, the company (formerly Auction.com) has facilitated the sale of more than $18 billion in commercial real estate assets.

— Camren Skelton

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