United States Industrial Outlook | Q1 2018
Positive sentiment indicators and continued buoyant tenant demand for logistics space point to a good start for markets in 2018.
Spurred by an increase in absorption of warehouse space, U.S. industrial rents inched up further reaching $5.53 per square foot, with year-over-year growth of 5.3 percent. As top logistics markets continue to operate at a sub–3.0 percent vacancy rate, we expect continued competition for quality space to add pressure on rents through 2018.
Total U.S. new deliveries were at 58.6 million square feet—up over the same period last year. Nearly 81% of the U.S. development pipeline is dominated by smaller to mid-sized industrial buildings ranging from 50,000-500,000 s.f. Overall preleasing rate for properties in the development pipeline remains stable at 44.8 percent.
Overall vacancy levels have been cut in half since the beginning of 2010 when it peaked at 10.2% in the first quarter of 2010. It is now 260 bps lower than the lowest mark in late 2007/early 2008.
This is in response to an increased leasing demand of smaller to mid-sized spaces and the lack of available buildable land for mega-box warehouses (over 1 m.s.f.). Atlanta, followed by Eastern & Central PA, are the two leading markets with the most number of + 1 m.s.f buildings in the development pipeline.
After a stellar fourth quarter, with nearly 81.7 m.s.f. of total net absorption—the best fourth quarter historically—in Q1 net absorption came back to healthy & stable levels, closing the quarter with 48.9 m.s.f.
Total inventory tops 12.5 b.s.f. led by Chicago, Los Angeles and Philadelphia/Harrisburg.
Average asking rents jumped to $5.25 per square foot. Northern New Jersey saw the highest year-over-year rent growth, followed by San Francisco Mid-Peninsula, Seattle and Inland
Annual net absorption grew 11.9% to 58.4 m.s.f. Philadelphia, Dallas and Atlanta led absorption, contributing 34% alone.
Vacancy rates fell in nearly three-quarters of U.S. markets, dropping overall U.S. vacancy to 5.3%. California continues to have the tightest markets in the country, led by Los Angeles (0.9%), East Bay (1.2%) and Orange County (1.5%).
206.7 m.s.f. is currently under construction, and an estimated 247.2 m.s.f. is expected to deliver through year end.
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Managing Director, Industrial & Logistics Research
Vice President, Americas Industrial Research
Manager, Americas Industrial Research