All Signs Point to a Slowing Industrial Asset Class
But the sector is still expected to remain robust for 2020.
CHICAGO—The industrial asset class has been the darling of the commercial real estate industry for the last few years, buoyed by e-commerce and other related trends. However, there are indications its growth will slow in 2020, based on numerous statistics.
The latest come from Cushman & Wakefield, which in a new outlook reports that the top 10 markets for absorption in North America for 2020-2021 are projected to be Dallas/Fort Worth, Inland Empire, Atlanta, Chicago, PA I-81/I-78 Corridor, Central New Jersey, Indianapolis, Houston, Toronto, and Vancouver.
That said, the overall market will experience some slowdown in growth. The good news is that in most cases this slowdown will mostly be a case of less-dazzling growth. For example, despite the slower pace of occupancy and spec pre-leasing, occupiers continue to demand new supply, C&W says. It reports that new deliveries will reach 573.4 million square feet by 2021 with over 50% of the space delivering in 2020.
In addition, the North American industrial market is expecting 460 million square feet of net absorption from 2020-2021, nearly the same as the 2019-2020 period. “This shows sustained growth despite the potential for a ‘cooling off’ period the market could see.”
Overall vacancy is expected to increase by 20 basis points to 4.9% in 2020 and an additional 30 bps to 5.2% by year-end 2021. Again, there is a flip side to this story. The increase will alleviate some—but certainly not all—of the pressure on tenants looking for quality space, C&W says.
Also, while triple net asking rental rate growth is expected to slow, industrial rents are still increasing. Industrial rents are expected to reach $6.82 per square foot triple net in 2020 and $6.93 per square feet triple net by year-end 2021—the highest industrial rental rate ever reported.