The squeeze is intensifying in the industrial real estate market, which is seeing record low vacancies and enormous net absorption, pushing up rents and following one record quarter with another.
Cushman & Wakefield’s industrial market report Wednesday found vacancy across the United States at 3.7 percent for the fourth quarter. It was the first time the vacancy rate had fallen below 4 percent since the firm began tracking it in 1995.
Vacancy rates could continue to shrink: Demand is outstripping supply in the market by almost 50 percent. Net absorption hit a new high last year at more than 500 million square feet while new leasing activity also set an annual record at 879.9 million square feet.
The amount of industrial space under construction is also at record levels with 568.2 million square feet under development in the fourth quarter, a 54 percent rise from 2020 levels. But the construction can’t come quickly enough.
“Developers are setting new records on the pipeline yet falling short of meeting demand for space when it comes to deliveries due to pandemic-related issues, particularly for warehousing and e-commerce facilities,” said Carolyn Salzer, Americas head of logistics and industrial research for Cushman.
“Until significant new supply is able to be delivered at the rate of demand, we expect tenants to continue to struggle finding the space they need,” Salzer added.
For the fourth quarter, net absorption was above 145.2 million square feet, while new leasing was more than 178.8 million square feet. Absorption was down 6.3 percent from the third quarter but up 47.9 percent from the previous year. New leases were down 23 percent year-over-year and 11.3 percent from the third quarter.
The big gap between supply and demand unsurprisingly resulted in a rise of net rents. Rents hit a record of $7.39 per square foot in the fourth quarter. The net rents represent a 3.2 percent rise quarter-over-year and 9.5 percent year-over-year.
Only five markets analyzed by Cushman & Wakefield saw net absorption decline in the fourth quarter. St. Petersburg and Clearwater, Florida, led the decline with a loss of 240,000 square feet. Atlanta had the highest net absorption with 12.4 million square feet. Chicago had the most leasing activity in the fourth quarter with 13.5 million square feet of new deals.
California’s Inland Empire and central New Jersey continue to sport extremely low vacancy rates in some of the most valuable industrial markets. The central New Jersey vacancy rate dropped from 1.5 percent in the third quarter to 1.4 percent, while the Inland Empire vacancy rate stayed steady at 0.7 percent. Providence has the country’s lowest vacancy rate, a measly 0.1 percent.
The outer boroughs of New York were the only market with a net rent above $20 per square foot in the fourth quarter. The lowest net rent was in Memphis, where it was only $3.77 per square foot.