Industrial Strength

Matrix Market Report

By Joel Nelson on Dec 1, 2018 in News

Yardi Matrix took a close look at the U.S. industrial real estate market’s performance in the first half of 2018 and found plenty of positive signs.

Indications of the sector’s strength include:

• Strong demand for space driven by year-over-year e-commerce sales growth of 15.4%
• Nearly 125 million square feet of industrial space coming online
• 7% year-over-year rent growth
• A national vacancy rate below 5% in the first quarter, the lowest since 2010
• Commercial real estate-leading investment volume

“Demand is stronger than ever” in every industrial subsector, the report says, with warehousing, manufacturing and flex space accounting for most of the occupancy gains. Demand was strongest in California’s Inland Empire, followed by Chicago and New Jersey. The industrial sector continued to benefit from rising e-commerce sales, which totaled $120.4 billion in the second quarter alone and drove the need for distribution centers near dense population areas.

Over 90% of the first half’s new supply was warehouse and distribution space, with more than 238 million square feet of additional space under construction at mid-year. In markets where available land for development is scarce, developers focused on renovation and site remediation projects, expecting to recover costs with higher rents.

Industrial rents continued to increase in most markets, spurred by the exceptional demand and lack of excess space in the top logistics markets. Rents averaged $6.29 per square foot at mid-year, up 7% year-over-year. “Expect rents to further increase through 2018 as the quality of available inventory improves due to upgrades and addition of new space,” the report says, noting that a slight deceleration might follow in 2019 as projects now under construction add to available inventory.

The national industrial vacancy rate, 4.9% in the first quarter, was largely due to companies snapping up space before it was completed.

Investment activity continued upward in the year’s first half. Sales volume reached $39 billion, a 26% year-over-year increase and the largest growth rate among all commercial real estate sectors. Secondary and tertiary markets with available land for development, high population growth and easy access to transportation centers held particular appeal for investors.

Read the full report, titled “Exceptional Growth Driven by E-Commerce,” which also includes in-depth examinations of core industrial markets Chicago, the Inland Empire and New Jersey.