Industrial sector primed to finish 2020 strong
Third quarter analysis shows industrial real estate remains healthy and occupier activity is strengthening
CHICAGO, Nov. 2, 2020 – The U.S industrial real estate market continues to prosper and remain resilient, even amid uncertainty surrounding the pandemic. A report from JLL found that industrial tenant touring activity is up, move-ins strengthened and rents climbed in the third quarter. With a new year on deck, 2020 can be expected to close out strong, with increasing demand from the e-commerce and Construction Materials & Building Fixtures industries, record-high deliveries and annual absorption inching close to the 200 million square foot benchmark.
E-commerce dominates leasing with Construction Materials & Building Fixtures spiking
According to the JLL report, industrial leasing totaled 114 million square feet in Q3 with sectors like e-commerce, Logistics & Distribution, Construction Materials & Building Fixtures, Traditional Retailers, and Third-Party Logistics (3PL) leading the way. As e-commerce continues to see heightened demand, leasing now totals over 71.3 million square feet year-to-date, increasing by 45.1 million square feet since 2019. Overall, e-commerce accounted for 13.4 percent of total leasing in Q3, with increased demand for last-mile delivery, demand from e-commerce could continue in 2021.
The pandemic also sparked an unprecedented growth of home improvement and residential construction projects as consumers continue to spend more time at home. The Construction Materials & Building Fixtures industry grew by 42.3 percent in Q3. Of total leasing, Construction Materials & Building Fixtures accounted for 9.9 million square feet, a 2.9 million square foot increase from Q2.
Deliveries hit record highs
Ninety-seven million square feet of new construction was added to the industrial market in Q3, setting a record for quarterly deliveries. Top industrial markets included Inland Empire, Dallas-Fort Worth, Eastern & Central Pennsylvania, New Jersey, Chicago and Houston, which contributed to almost 46.1 million square feet of new projects delivered. Speculative pre-leasing rates increased to 34.7 percent for new deliveries, jumping up 16.6 percent from Q2. The amount of spec product under construction continues to hold steady at 67.6 percent.
Total net absorption on track to hit 200 million square feet by end of the year
Tight availability in the market continues to contribute to rents increasing on a quarterly and annual basis. Average asking rent for the U.S. industrial market was reported at $6.31 per square foot at the close of Q3 with annual rent growth at 4.2 percent. Markets with significant quarter-over-quarter rent increases included North Bay, Michigan, Cleveland, Charleston and Long Island.
Net absorption was very strong at the close of Q3 with 76 million square feet realized. Year-to-date total absorption is close to 165 million square feet and is expected to stay on track, reaching 200 million square feet by the end of the year. Markets with the highest annual net absorption include Dallas/Fort Worth, Chicago, Eastern & Central Pennsylvania, Atlanta, and Inland Empire with a combined total of 77.6 million square feet.
New York City, Richmond, Nashville, and New Jersey were among the top markets with the lowest vacancies in the U.S. hovering below 3 percent. JLL expects that given the strong demand from sectors like e-commerce and high pre-leasing rates, the overall vacancy rate will hold steady in the industrial market in 2021.
“The pandemic has outlined clear differentiators between brands that have an online, direct-to-consumer capability and those that do not. Brands that are capable of fulfilling consumer demand efficiently have benefited as a result,” said Rich Thompson, JLL’s global Supply Chain & Logistics Consulting Leader. “The importance of urban logistics cannot be understated. As we move forward infrastructure needs to be built to withstand the heightened demand for last mile delivery.”
JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. JLL shapes the future of real estate for a better world by using the most advanced technology to create rewarding opportunities, amazing spaces and sustainable real estate solutions for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $18.0 billion in 2019, operations in over 80 countries and a global workforce of over 92,000 as of September 30, 2020. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit jll.com.