Industrial supply is only getting tighter in today’s market. For tenants, this means higher rents and even more challenges securing space in 2019, meaning developers must construct outside major metros where space is available. Matthews™ dives into the industrial market, analyzing the current limited supply, developer and investor trends, and how tenants are navigating the limited industrial supply.
The data behind the industrial market
Rent growth and low vacancy in the industrial sector is a big story right now as record low vacancy is driving new industrial development and keeping further upward pressure on rents. In the fourth quarter of 2018, the nation hovered around a five percent vacancy, almost half of what vacancy levels were like in 2009, according to Real Capital Analytics. Moreover, according to Prologis, the country’s largest industrial developer experienced rent growth of 19 percent in 2018.
Industrial absorption is buoyed by a strong job market and consumer spending.
In 2018, construction reached its highest level. Nearly 233 million square feet of new industrial space was delivered to the market in 2017, and another 221.6 million was under construction at the end of the fourth in 2018, with speculative projects accounting for nearly 75 percent of projects underway. Construction Monitor, which tracks permits pulled nationally for both commercial and residential projects, reported that developers pulled permits for roughly 107.5 million square feet of new industrial space in 2018.
However, based on CoStar’s analytics, the construction of industrial buildings is plateauing due to the deep pool of investors wishing to purchase industrial assets, leading to the growth in prices.