The industrial sector is a “bright spot” in the commercial real estate landscape, according to Colliers’ Summer 2022 Markets that Move America report, which means it’s the right spot for so many investors and other CRE players. Key fundamentals are reaching record levels, the report notes, including occupancy and construction activity. As Amanda Ortiz sees it, industrial markets that are particularly thriving have an important trait in common: access, especially to major ports.
The global CRE company’s head of industrial research and speaker at the 3rd Annual GlobeSt. Women of Influence Conference notes that even with the heat in the sector widespread, one market is standing out from the pack.
“The surge of industrial fundamentals is driven by the Ports of Los Angeles and Long Beach, responsible for roughly 40% of all inbound containers into the US,” says Ortiz, adding that the ports continue to work through the congestion of cargo ships that can be seen from much of the Southern California coastline. “While Midwest markets boast numerous logistics advantages, the proximity to overwhelmed US ports is what’s driving rental growth.”
Record-low vacancies — Greater Los Angeles, Columbus, the New York City metro, St. Louis and Philadelphia posted vacancies lower than 3%, according to the Colliers report — are driving development with nearly 600 million square feet in the pipeline. Like retail, distribution centers follow rooftops in the age of e-commerce.
“The Midwest might not experience the highest rent increases, but the relative availability of developable land in these markets – and large populations to boot – make these markets ripe for development,” says Ortiz, highlighting Detroit, Memphis, Chicago and Denver as markets achieving some of the largest inventory increases due to new supply.
The industrial sector gets an A+ for activity driven mainly by access, but alternatives, whether because of supply chain reconfiguration or simply reaction to the high demand gateway markets, are also key. As a result, Portland has seen substantial growth in industrial occupancy with a robust 8.9 million square feet of product in its pipeline, according to the Colliers report.
“The lack of available space in other West Coast port markets, like the Inland Empire where the vacancy rate is particularly low, is driving tenants to nearby cities with seaport access, a good transportation network and population growth,” says Ortiz. “Demand has remained strong throughout the industrial sector, but secondary markets have seen unprecedented growth. Record-low vacancies and industrial space demand in core markets, created largely by e-commerce, have driven occupiers into new locations.”
Markets near the Port of New York/New Jersey have stood to benefit from supply chain reconfigurations with some shippers rerouting product to less congested options, Ortiz adds. However, redirecting these shipments has begun to cause interruptions at other East Coast ports and increasing transportation costs.
Overall, expect another record year of industrial deliveries, Ortiz forecasts. Despite economic uncertainty and remaining supply chain kinks, the markets that move America continue to make all the right moves.