Specialized Industrial Claimed Tightest Vacancy Rates in Q4

Vacancy was tightest for specialized industrial space in the fourth quarter, while asking rents increased and net absorption hit never-before-seen levels at the end of 2021.

Specialized industrial space had the lowest vacancy of all industrial properties at 3.5%, a decline of 20 basis points from Q3 figures, according to Brandon Hardin of the National Association of Realtors. Vacancy rates for the niche asset class are up 0.1% this quarter, while asking rents have increased 7.5% year-over-year as of Q1.

Net absorption accelerated quickly from the low of 2.9 million square feet recorded in Q2 to a high of 9.6 million square feet in Q3 and 9.5 million square feet in Q4, the highest levels NAR has observed since the third quarter of 2016.  And as of January 6, net absorption for specialized industrial hit nearly 10 million square feet, a historic high.

Meanwhile, the logistics sector remained predictably robust at year’s end, with net absorption totaling 109.6 million square feet. Vacancy rates rose slightly to 4.2% as of January 6, a 10 basis point increase over Q4, and logistics space sales volume was the highest among all industrial assets during the same period. Q4 sales totaled $21.9 billion.

“Investors remain very bullish on this property, considering strengthening fundamentals driven by consumer online demand,” Hardin writes in a new analysis. “Demand growth should continue despite supply chain backlogs, increasing costs of materials and labor, and material shortages, as industrial tenants increase demand for space to mitigate other expenses.”

Industrial continued to be a leasing and investor darling last year, as total absorption exceeded 500 million square feet and vacancy sank below 4% for the first time in Q4, according to Cushman & Wakefield data. 

“We are seeing unprecedented low vacancy and incredibly high demand for industrial space across the United States. Demand is outpacing supply by a wide margin—almost 50 percent—and new leasing activity totaled 879.9 msf, a new record. This level of demand put the market in place to see the first year ever of new leasing activity surpassing 800 msf at year-end,” said Carolyn Salzer, Americas Head of Logistics & Industrial Research for Cushman & Wakefield. “This continues to put upward pressure on rental rates, setting a new record of $7.39 per square foot.”