As the current package of economic and supply chain fundamentals—high levels of consumer demand, rapid order fulfillment, inventory replenishing, and clogged delivery networks, among others—remains intact, so does the current outlook for the industrial real estate market, according to data recently issued by Chicago-based industrial real estate firm CBRE.
In its “U.S. Industrial & Logistics | Q3 2021” publication, CBRE reported the following key market metrics, for the third quarter:
With demand for industrial real estate space continuing to outpace supply, coupled with record-high rents and low vacancy rates, that raises the question of how long it will take for the spaces under development to come online.
“Delays are expected to continue, however, there is evidence that more projects are getting completed,” said Matt Walaszek, CBRE Director of Research. “Although completions are down by 6.1% year-to-date through Q3 compared with last year, they increased by 36.1% between Q2 and Q3 to 79.3 million sq. ft. With nearly 450 million sq. ft. currently under construction there will likely be even more completed in Q4 2021.”
Should the situation regarding materials shortages and rising costs worsen, the impact of that is likely continued volatility, noted Walaszek.
“Materials costs are still well above pre-pandemic levels; however, lumber prices have dropped significantly since June,” he said. “Iron and steel prices, which skyrocketed earlier this year, are leveling off. Rising rents—up by 10.4% overall since last year—are offsetting some of these increased costs and keeping developers moving ahead with projects at full steam.”
When asked if the pairing of business inventories is exceeding pre-pandemic levels and the need for more safety stock, is the top driver for warehouse space demand, James Breeze, CBRE Senior Director, Global Head of Industrial & Logistics Research, said that it is one of the top demand drivers along with robust e-commerce sales, an improving economy, and population shifts.
“All of these drivers will lead to significant demand for industrial space in 2022,” he added.
For individual markets, CBRE reported that Atlanta, Dallas/Ft. Worth, and Phoenix have the largest under-construction volumes, at a combined 94.0 MSF through the third quarter.
Looking at markets, in terms of third quarter U.S. net absorption, Chicago led the pack, at 32.0 MSF, or 8.5%, with Dallas/Ft. Worth, at 29.5 MSF, Pennsylvania/I-78/81 Corridor, at 22.8 MSF; Atlanta, at 22.8 MSF, and Houston, at 22.1 MSF, rounding out the top five markets.