At the end of the third quarter, the industrial market was in good shape with positive absorption that led to 165 millions square feet in occupancy gains.
The US economy entered the beginning stages of recovery in the third quarter with improved GDP and a rebound in retail spending. The industrial market is playing a key role in that overall economic growth. Thanks in large part to the growth online shopping, retail sales increased 1.9% in September, according to a new report from Colliers International.
Several research outlets have estimated the positive impact increased online shopping would have on the industrial warehouse and distribution market, but data from the third quarter made it clear. The US industrial market had 165 million square feet of positive absorption and a national vacancy rate of 5.6%—up only a nominal .6% from the third quarter 2019—despite strong new construction activity and new supply deliveries.
The positive absorption activity was spread across 58 markets nationally, but the Inland Empire, Dallas, Atlanta, Chicago, Houston and Columbus were the top markets for occupancy gains, according to the Colliers report. Each of these markets had 8 million square feet or more of positive absorption.
In addition, new markets have emerged as winners during the pandemic, including Reno/Sparks, Savannah, Columbus, Las Vegas and Salt Lake City, all of which had the most absorption growth when compared to the size of the total market supply.
Not every market has been a winner, however. Coastal markets like Los Angeles, Silicon Valley, Miami and Long Island have all had negative absorption of at least 1.5 million square feet year-to-date.
Amazon has been at the forefront of this growth. The e-commerce giant is seeking to expand in every major market throughout the US. Colliers expects demand will only grow following an additional jump in online retail sales during the holiday season. This will likely promote stockpiling by retailers and push demand for warehouse space.
Despite the strong demand from users, research from Real Capital Analytics shows that industrial investment is down 25% this year with a total of $59 billion in investment sales volume. Warehouse and distribution deals accounted for 75% of the investment activity. Pricing has increased over 2019, up to $101.40 per square foot. This is only the second year on record when pricing for industrial has exceeded $100 per square foot.
Data centers and sold storage facilities are also driving activity, but manufacturing facilities, on the other hand, are struggling through the pandemic, which has hampered manufacturing production. Colliers forecasts anemic activity for this industrial segment through 2021.
Source: “Industrial’s Positive Absorption Totals 165M Square Feet in Q3“
