The number of industrial buildings coming online nationally slowed slightly in the first nine months of 2018, after several years of strong growth.
A total of 237 million square feet of new industrial space was delivered across the country from January through September, down slightly from 243 million square feet year over year, according to a new report by Avison Young.
The slowdown follows a major growth period for industrial development across the country, with 1.5 billion square feet of new space coming online since 2012, the report said. The surge in deliveries in previous years left many markets struggling to absorb the new space, and developers unwilling to start new projects, Avison Young principal Erik Foster said. As the existing space is filled, new projects will start getting launched again, he said.
Markets like Los Angeles and Chicago have been leading the way in industrial market growth, and developers have benefited from record low vacancy rates and strong rent growths. But after years of growth, even those markets slowed this year.
Chicago saw 10 million square feet of new industrial space in the first three quarters of 2018 — a steep drop from the 22.6 million year over year, according to Avison Young. Los Angeles saw 5.4 million square feet of new industrial space through three quarters, which is about 77 percent of the way to its 2017 total of 7 million square feet.
In Chicago, the drop in deliveries caused vacancy rates to continue falling, with the 5.7 percent vacancy in the third quarter a 20 basis point drop year-over-year. That’s not the case in Los Angeles, where vacancy in the Inland Empire area increased to 4.9 percent but is still near record lows.
While deliveries are down so far in 2018, they won’t be for long: More than 337 million square feet of new industrial space is under construction across the country, the report said.
New Jersey has already eclipsed its 2017 industrial delivery total, with 10.3 million square feet of new space coming online through three quarters of this year, compared with 9.7 million square feet delivered all last year.
In Miami, demand for warehouse space has pushed vacancy rates to a record low 2.7 percent in the third quarter, falling 33 basis points year-over-year. But more than 4 million square feet of industrial space under construction will increase the supply.
Secondary markets across the country are now benefiting from the same economic factors that caused a surge of industrial development in larger markets, Foster said. Growth in e-commerce is leading companies to increase the amount of industrial space needed for productive storage and delivery.
Columbus, Ohio, for example, has seen 4.3 million square feet of industrial deliveries so far this year, eclipsing 2017’s year-end total of 3 million new square feet. In Greenville, South Carolina, 2.8 million square feet has been delivered through the end of the third quarter, eclipsing 2017’s total of 2.3 million square feet of new development.