Industrial Activity Surge Leads to Record-Breaking Quarter

Michael Tucker

November 01, 2018

Industrial activity ‘surged' in the third quarter, led by demand from the third-party logistics and packaging industry, reported Colliers International, Toronto.

The sector set records for rent per square foot and for breaking the 5 percent vacancy rate, Colliers said.

More than 76 million square feet of space was absorbed during the quarter, the third-highest quarter on record, noted Colliers National Director of Industrial Research James Breeze. This brought year-to-date overall net absorption to 203 million square feet, up more than 11 percent compared to last year.

"With this activity, the market is well on its way to having its second-best year ever for occupancy gains," Breeze said. He noted robust demand dropped the overall vacancy rate to 4.9 percent, the first time the industrial market has posted a sub-5 percent vacancy rate. This continued activity and record low vacancies combine to drive up asking rents, which finished the quarter at a record $5.91 per square foot per year for warehouse/distribution space.

Developers are also breaking ground for new industrial product at a record pace, with 267 million square feet in development, Breeze said.

CBRE, Los Angeles, noted the sector's overall availability rate declined 10 basis points in the third quarter to 7.1 percent. New supply totaled nearly 50 million square feet, down slightly from the previous quarter. But speculative development remains "restrained," the firm's third quarter Industrial & Logistics Figures report said.

"The major drivers of supply-chain demand, consumer spending, business inventories and industrial production are all showing measured growth this year," CBRE said. It called this scenario especially positive for the industrial and logistics sector because consumer spending drives demand for logistics space.

"As we look ahead, the short-term forecast for industrial real estate is robust thanks to a strong U.S. economy as well as the continued growth in e-commerce sales," Breeze said. "[But] in the long run, there are headwinds to look out for including trade and potential labor shortages."

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