At 8.8%, Availability Now at Lowest Level Since Mid-2001
Los Angeles – July 13, 2016 – Availability of industrial space in the U.S. declined for the 25th consecutive quarter, the longest such streak on record, as e-commerce continued to fuel warehouse demand, according to CBRE Group, Inc.
Industrial availability declined to 8.8 percent in the second quarter, down 20 basis points (bps) from the first quarter, to its lowest level since the second quarter of 2001. Of 57 major U.S. markets tracked by CBRE, 37 registered declines in their availability rate in the second quarter, marking a slight gain from the 35 markets did so in the first.
Jeffrey Havsy, CBRE’s Chief Economist for the Americas, said robust demand from e-commerce users building out their North American distribution networks will continue to push increases in lease rates this year and spur additional construction. CBRE expects developers to complete construction of roughly the same amount of industrial space in the 57 markets this year as they did last year, when they delivered 150.5 million square feet. That tally, while robust, is nonetheless well short of the 10-year high of 213.5 million delivered in 2006. However, the planned pipeline is continuing to grow.
“While we’ve had some shocks to the global economy, the U.S. economy still is moving along at a slow and steady space, and that will sustain industrial demand,” Mr. Havsy said. “Retail sales have been above expectations, posting pretty strong gains in April and May. That will help both the retail and industrial sectors.”
E-commerce has pushed industrial availability to unusual lows as demand grows for facilities to handle uses such as same-day delivery fulfillment and reverse logistics. In addition, the U.S. dollar’s strength relative to other currencies should continue to increase U.S. imports, which in turn drive additional demand for industrial space.
Thirteen of the 57 markets tracked by CBRE posted increases in their availability of space, due mostly to delivery of newly constructed buildings not yet leased. Those that gained availability in comparison to a year earlier include Houston, Cincinnati, Denver, Minneapolis, California’s Inland Empire, South Central Pennsylvania, Cleveland and Honolulu.
Several registered significant declines in their availability rates from a year earlier, including West Palm Beach (down 290 bps), Newark (down 270 bps), Memphis (down 270 bps), Tampa (down 250 bps), Jacksonville (down 250 bps) and Detroit (down 250 bps).
Looking ahead, Mr. Havsy said, “We think demand will slow a little and supply will continue to ramp up. Vacancy will bottom out this year and then start to slowly rise. But industrial will remain one of the best performing asset classes in commercial real estate for a long time.”
The full report is available upon request.
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