Industrial Properties Continue to be on High-Demand Especially with E-Commerce Tenants

Tight market conditions for United States-based warehouses and distribution centers continues to get even tighter, according to data issued by industrial real estate firm CBRE in its U.S. Industrial Availability Index, which was released this week. The availability rate in the first quarter dipped six basis points to 7.3%, which CBRE said marks the 31st consecutive quarter that availability has declined. And on an annual basis, the availability rate dropped 20 basis points annually. 

                                                                                                                                                                      Photo Credit:   Business South

                                                                                                                                                                     Photo Credit: Business South

Tight market conditions for United States-based warehouses and distribution centers continues to get even tighter, according to data issued by industrial real estate firm CBRE in its U.S. Industrial Availability Index, which was released this week.

The availability rate in the first quarter dipped six basis points to 7.3%, which CBRE said marks the 31st consecutive quarter that availability has declined. And on an annual basis, the availability rate dropped 20 basis points annually. 

CBRE explained that the market for U.S.-based warehouses, distribution centers, and other industrial facilities continues to see demand outpace new supply, with occupiers, largely in the form of e-commerce players, securing these facilities.

What’s more, it added that first quarter construction completions came in at 35 million square-feet, and demand was at 42 million square-feet, with that gap having narrowed over the last year. While completions in the first quarter were lower than previous quarters, CBRE said that is not an issue, as the first quarter is often the weakest one for deliveries, adding that the supply pipeline is full.

“We maintain that as supply comes to match demand, availability’s declining trend will initially flatten out and then gradually tick up in the medium term,” CBRE said. “Supportive underlying conditions for the industrial sector remain intact, will demand still robust and the supply pipeline strong.”

CBRE Econometrics Senior Managing Economist and Principal Data Scientist Timothy Savage said that in the first quarter supply caught up with demand in the first quarter due to strong rent growth in many markets.

“As a result, we are closer to a balanced equilibrium,” he said in an interview. “Recent tax reform, paired with strong macroeconomic fundamentals may extend the industrial cycle through 2020. In the medium term, we expect completions to taper as the current economic cycle tapers.”

For the first quarter, CBRE data indicates that availability declined in 31 markets, increased in 25, and was flat in eight. The firm said this in in sync with strong economic fundamentals, including a labor market at nearly at full capacity, modest wage gains that are expected to accelerate as the government’s fiscal stimulus takes hold, and solid consumer activity, which it said points to strong momentum for the industrial sector’s growth cycle.

Net absorption of industrial space in, which CBRE views as a “proxy for demand,” again outpaced completions in the first quarter, with the first quarter 2018 four-quarter sums for net absorptions and completions at 215 million and 204 million square-feet, respectively. And the excess demand of 11 million square-feet was significantly down from 100 million square-feet from the first quarter of 2017.

“Going forward, a strong supply pipeline will mean that the demand-supply gap will likely fluctuate around zero; the availability rate should consequently fluctuate around its current level over the near term,” said CBRE.

 

Article Resource: Logistics Management