Rapid Growth in Industrial Properties

The industrial sector saw a massive surge in demand across the U.S. post-pandemic, and it’s not slowing down for the remainder of 2022. Industrial assets are breaking ground at a record pace with construction up over 60% with 816 million square feet in the pipeline.

The rise of e-commerce led to an increase in transportation costs, online shopping, and a migration of people away from cities. Industry leaders have attributed the spike in industrial real estate to consumers’ buying more products online and internet retailers’ efforts to deliver orders ever faster. Many industrial projects are now pre-leased before even being built.

 

Industrial Leasing Trends

Amid tight supply and record demand, the industrial real estate market remains strong. Overall leasing volume increased 17% year-over-year, according to data from Costar, and logistics and distribution companies, as well as third-party logistic providers, have been the leading drivers of demand. Coastal markets continue to record the most significant rent increases, as demand for industrial space remains high.

Even though developers are working at maximum capacity right now, supply should remain low in 2022, pushing rent growth higher.

 

A New Wave for Investors

The booming sector has made one thing clear; many investors are shifting their portfolios to be more diversified and industrial dominant. Due to the lack of supply and long-term nature of industrial leases, lease rates will most likely stay elevated, and tenants with leases coming up for renewal could be facing rental increases of 25% or more, making for huge potential gains for operators.

Even though there are major headwinds to consider, including inflation and supply chain disruptions that could slow the rate at which the industry is growing, today’s low supply and high demand mean the industrial sector should continue to dominate the commercial real estate market in 2022.