The U.S. Industrial Real Estate Sector on Pace for Record Year – 4Q 2020

Thomas Lasky, Managing Member – DM Colliers Real Estate Advisory

The U.S. industrial real estate sector continues to perform exceptionally well despite headwinds facing commercial real estate. Robust net absorption, rent growth, construction and occupancy all remain healthy, fueled by the continued growth of e-commerce and an increase in demand for warehouse and distribution space. In the second quarter of 2020, e-commerce sales grew 31.8% from the same time last year and now represent 16.1% of total non-auto retail sales. E-commerce is expected to continue to be a driving force in industrial real estate for the foreseeable future.

DM Colliers Real Estate Advisory has compiled some of the most recent headline numbers from the third quarter of 2020:

• The U.S. industrial vacancy rate rose for the fifth consecutive quarter to 5.6%, mostly due to vacant speculative deliveries, the first time it has topped 5.5% since mid-year 2016.

• Net absorption remained positive with occupancy gains of 164.7 million square feet year-to-date, 3.3% higher than the same time a year ago.

• Third quarter absorption of 57.2 million square feet was up 35.3% over the second quarter — which was expected to be a strikingly slow quarter — as the market began to recover from the negative effects of the global pandemic.

• The southern United States dominated activity at the close of the third quarter, with 40% of both new supply added and occupancy growth in the nation year-to-date. The region’s logistics advantages and growing population continue to attract occupiers.

• According to Real Capital Analytics, however, quarterly investment sales volume continued to soften as year-to-date transactions totaled $59.9 billion — a 25% decrease from 2019. Average pricing increased to $101.40 per square foot — only the second time average square-foot pricing exceeded $100.

• Year-to-date, new industrial real estate supply hit a record high in 2020, surpassing 2019 by 27%. A total of 252 million square feet was delivered at the end of the third quarter, compared to approximately 198 million square feet in both 2019 and 2018.

• Development stayed the course and totaled 328.3 million square feet under construction at the close of the quarter, broadly in line with construction at this time last year.

Despite the ongoing pandemic and tensions surrounding the U.S. presidential election, interest in warehouses and industrial buildings is expected to remain strong as companies continue to adjust distribution networks to accommodate increasing e-commerce demand.

For example, Amazon’s explosive growth is expected to continue. It recently announced that third quarter sales surged 37% to a record $96.2 billion. The company plans to add 100,000 seasonal workers in the United States and Canada to meet holiday demand, as sales volumes are expected to increase even more by year-end. As Amazon continues to seek space in nearly every major market, the strength of U.S. industrial real estate will continue to outpace other commercial sectors.

If your business has a need to reevaluate its industrial real estate to accommodate growing stakeholder needs, contact DM Colliers Real Estate Advisory. Our team of commercial experts stand ready to help you identify space to meet your objectives, negotiate the lease agreement and much more.