Industrial Supply-Demand Dynamics Are Poised for a Shift Next Year
Cushman & Wakefield projects overall vacancy to gradually rise by about 60 basis points to 5.8% by the end of 2021.
E-commerce, new technologies and supply chain resiliency have created strong tailwinds for the North American industrial market. These trends are set to shakeup supply-demand dynamics in this CRE sector, as new figures from Cushman & Wakefield show.
C&W projects overall vacancy to gradually rise by about 60 basis points to 5.8% by the end of 2021. It will then rise an additional 40 bps to 6.2% by year-end 2022. With new deliveries coming online, C&W says that would alleviate some, though not all, of the pressure on supply-constrained markets throughout North America.
C&W projects new deliveries to hit 697.3 million square feet by 2022. Over 51% of that space will come online in 2021.
“Occupiers continue to demand new, quality supply from developers as vacancies remain tight and older buildings are not able to meet the needs of the tenant,” according to C&W.
Even with new deliveries coming online, rents are expected to rise. C&W projects North American triple net industrial rents to hit $6.83 per square foot in 2021. By 2022, they will hit the highest industrial rental rate ever reported at $6.97 per square foot. C&W believes triple-net asking rent growth will remain positive, but the growth rate will be more moderate.
Over the next two years, 481 million square feet of industrial product should be absorbed in North America. In both 2021 and 2022, more than 200 million square feet should be absorbed each year. “This shows sustained growth despite the potential for slower take-up as the market recovers from the pandemic,” according to C&W.
Other reports have shown the strength in the industrial sector. In Q3, industrial rents reached a historic high of $6.32 average per square foot nationally, which is a more than a 36-percent increase over the previous cycle record set in 2007, according to JLL. Rent collections hit 99.4% in July.
The strength in the industrial sector is also showing up in sales. Through the third quarter of 2020, industrial assets posted $55.4 billion in sales, according to JLL Research. That represents the second-highest tally for volume by sector through three quarters.
JLL expects industrial sales in the US to close out the year with between $75 and $85 billion in volume.