Industrial Market Posts Solid Q1 Fundamentals Despite COVID-19

  • The COVID-19 pandemic has forced some states to impose strict stay-at-home orders that are adversely affecting many industries. This is leading the U.S. economy into a recession that will result in very sharp declines in GDP for H1 2020 and in job losses, particularly in the retail, food & beverage and transportation sectors.
  • Despite the downturn, robust fundamentals in Q1 showcase that the U.S. industrial market was on solid ground prior to the COVID-19 pandemic. Although market conditions have shifted considerably since mid-March, there still is strong evidence of industrial sector resiliency.
  • In Q1, net asking rents rose by 4.8% year-over-year, 34 million sq. ft. of positive net absorption was recorded and the vacancy rate was at a near-record low of 4.5%.
  • Despite shelter-in-place rules, CBRE Research found that 16 of the top 20 markets for under-construction space—accounting for 70% of total under-construction inventory nationally—have workers active and on site, with most of these projects deemed “essential.”
  • Prior to COVID-19, pre-leasing activity of under-construction space was steady. Consequently, new development should only marginally increase the overall industrial vacancy rate in 2020.
  • Many proposed speculative projects have been put on hold as debt markets are challenged by less available capital and uncertainty over how to appropriately price risk. The lack of speculative development hitting the market in 2021 could lower the overall vacancy rate back to pre-COVID levels by the end of that year.
  • The food industry is undergoing significant disruption from COVID-19, as U.S. consumers increasingly have groceries delivered to their homes (D2C) or are buying online and picking up in store (BOPIS). This will increase demand for cold-storage space.
  • Although leasing activity may slow in the coming quarters, industrial demand will be bolstered by greater inventory controls, supply chain diversification and e-commerce growth.