The Outlook for Industrial Demand Rises Even Higher
In 2022, net absorption could hit 334.6 million square feet with a quarterly average of 83.6 million square feet.
The strong demand for industrial is forcing revised expectations.
Writing for NAIOP, Dr. Hany Guirguis and Dr. Michael Seiler have revised their forecast for total net industrial absorption in the second half of 2021 upward to 162.6 million square feet with a quarterly average of 81.3 million square feet. In 2022, they project net absorption to be 334.6 million square feet with a quarterly average of 83.6 million square feet.
Driving this upward revision in 2022 is strong economic growth. Real GDP growth projections have jumped from 5% to 7% in 2021. As the economy reverts to normal growth patterns in the first half of 2023, net absorption in the first half of the year is forecast to fall slightly to 160.5 million square feet, for a quarterly average of 80.2 million square feet.
While many sectors struggled during the pandemic in 2020, industrial, buoyed by e-commerce-related activity in the second half of the year, saw increased absorption compared to 2019. In 2020, 223.6 million square feet of industrial space was absorbed. The forecast was -103.4 million square feet.
Industrial activity has been robust this year. Since the beginning of 2021, nearly 100 million new square feet have been delivered nationally. In addition, 450 million square feet is currently under construction and another 450 million is planned.
Even with this strong development pipeline, demand remains strong and net absorption is rising.
“A continued surge in imports from retailers restocking depleted inventories has exacerbated the shortage of warehouse space near major logistics hubs, highlighting the need for additional construction,” write Giurgiu and Seiler. “Although supply chain disruptions are less severe than earlier this year, the cost of building materials remains above pre-pandemic levels, and construction workforce shortages may delay industrial completions.’
Guirguis and Seiler say that strong returns on industrial properties will continue to attract investment, leading to higher transaction prices and more development. “There is continued need for more last-mile industrial space and cold-storage facilities, which supports a premium for properties adjacent to more densely populated areas,” they write.