Robust industrial real estate activity remained fully intact in the first quarter, according to data recently issued by Los Angeles-based industrial real estate firm CBRE.
In its “Q1 2021 U.S. Industrial & Logistics Figures,” CBRE explained that the United States industrial market “shows no signs of slowing down with record-high asking rents and in-process development activity, low vacancy levels, and 44 consecutive quarters of positive net absorption” (which CBRE views as a proxy for demand).
With shippers leasing space at what CBRE called a historically robust pace to accommodate the large increase in e-commerce sales, CBRE said that 99.3 million square-feet (MSF) was absorbed over the course of the first quarter, marking the third highest quarter on record, with the fourth quarter of 2020 being the highest at 116 MSF, and the third quarter of 2016 second, at 104.8 MSF.
Other key data points highlighted by CBRE included:
In an interview, James Breeze, Senior Director, CBRE Global Head of Industrial & Logistics Research, said that the fourth quarter of 2020 and the first quarter of 2021 represent one of the strongest six-month period month periods ever, with CBRE continuing to see strong fundamentals amid the pandemic, with the economy continuing to improve and be largely driven by elevated e-commerce activity.
“E-commerce has certainly been a demand driver over the last decade, but with the huge increase in activity in 2020 a lot of companies got off the sidelines in the early days of the pandemic to ensure they could satisfy consumer demand and continues to do so. A lot of companies are entering the market…and a lot are wanting to add more safety stock in the U.S. to avoid disruptions. That is another driver for the record amount of activity, for pre-leasing and under construction projects, we are seeing.”
As an example, Breeze pointed out that of the 376 MSF currently under construction, 47% of that is already off the market, which he said represents a huge amount. What’s more, at the same time, he said vacancy rates continue to decline, with the first quarter vacancy rate down to 4.4%.
“You are seeing a situation of undersupply in many markets, and that is leading to rental rates continuing to increase to record highs,” said Breeze. “If we average our year-over-year rental rate growth, it is up 6.8% annually over the last five years, which is a huge increase, but occupiers seem willing to pay it because they need to, in order to be closer to the customer base, shorten transportation times, and have the right inventory. That leads us to believe there is a lot more runway in this record-breaking cycle.”
Looking ahead, Breeze said there is a massive amount of occupied construction set to hit the market in the coming quarters, which will, in turn, create more positive absorption, with the number of tenants looking for space in the market still very high. Taking that another step, he said that was exemplified by the first quarter transaction volume, which includes the actual leasing of space, new leases, and renewals, being the highest it has ever been, at 224 MSF, a 60% annual gain.
3PLs comprised 29.1% of first quarter transaction volume, up from 25.5% a year ago, with the segment leading all occupier groups. Next was general retail and wholesale, at about 26.7%, with some of that segment representing hybrid e-commerce distribution, with goods going to homes and stores. Rounding out the top three was B2C e-commerce, with goods going only to homes, at around 17.4%.