According to Transwestern’s latest national report on the U.S. industrial sector, between the first quarter of 2010 and the fourth quarter of 2019, the U.S. industrial market experienced occupancy gains of more than 3 billion square feet. In the most recent quarter, 58.6 million square feet of absorption contributed to that total.
Meanwhile, the U.S. average asking rental rate climbed to $6.38 per square foot in the fourth quarter, peaking for the third straight year. Five markets, including Las Vegas, Philadelphia, Oklahoma City, Boston and Raleigh-Durham, all posted year-over-year rent growth over 10%.
“Positive net absorption for 40 straight quarters is a remarkable trend,” said Matthew Dolly, Research Director. “U.S. job growth and strong consumer spending continue to drive retail sales, and despite record new deliveries, the construction pipeline remains full. We anticipate rental rates – which, on average, grew by more than 26% during the past decade – will continue to rise throughout the year.”
Despite many positive influences on industrial real estate, a shortage of labor has generated some headwinds for the logistics sector. National e-commerce sales logged the highest annual growth in its 20-year existence during 2019, which included a record monthly increase of 6.5% for December. At this pace, more workers will be required in order to keep supply chains moving efficiently.
Construction is also an area to watch. New product deliveries in fourth quarter 2019 were at the highest level in six quarters, contributing to a modest rise in average national vacancy. Developers continue to surge ahead with projects that present more infill space constraints and contamination issues than in the past. Approximately 450 million square feet of new space is underway nationally, with the largest percentage of that total concentrated in Dallas-Fort Worth, California’s Inland Empire, Houston, Chicago, Atlanta and New Jersey. Currently, only the Inland Empire and New Jersey register vacancy below the national average of 5%.
Looking ahead, rising construction prices, concerns around overbuilding, and the approaching presidential election could begin to curb development in some markets, even as rental rates rise.
“While trade war anxieties have subsided, uncertainty during election years sometimes causes deceleration in leasing velocity – although the industrial market ignored that tendency during 2016,” Dolly said. “It’s the nature of the industry for occupiers to exhibit more caution when it comes to making major business decisions.”