The market for warehouse and distribution center space in the US continues to be red hot, with rates on the rise and availability at near 20 year lows.
Those are some of the KEY takeaways from the Q2 market analysis for industrial space – largely distribution centers – from a Q2 2018 market review from real estate firm CBRE.
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The CBRE report includes the following highlights:
The U.S. industrial and logistics market continued to demonstrate strong fundamentals in Q2, with 58.8 million sq. ft. absorbed versus 48.9 million sq. ft. delivered.
The overall market's availability rate declined a bit from Q1 to 7.2% - the lowest level since Q4 2000.
This marked the 33rd consecutive quarter of positive net absorption, the longest streak since before 2001.
The new supply of 48.9 million sq. ft. that was delivered in Q2 was up 17.8% over the previous quarter and 7.5% over Q2 2017. Deliveries year-to-date are in line with 2017, as new supply comes on-line at a steady pace.
The under construction pipeline of 260.0 million sq. ft. in Q2 was up 6.5% over the previous quarter, which suggests that new-supply levels should grow over the next year, albeit at a moderate rate.
With demand exceeding new supply, net asking rents increased 1.7% in Q2 from Q1 to $7.11 per sq. ft. —the highest level since CBRE began tracking the metric in 1989. Rents increased 5.5% year-over-year, exceeding the average annual growth rate of 4.1% since 2012.
Relative to lease rates, the chart below from the report shows the year-over-year change in lease rates for industrial property by quarter. As can be seen, there have been increases of greater than 4% for each quarter starting in Q2 2016, and increases of 2% or greater every quarter since Q4 2012.
Source: CBRE
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CBRE handily also provides a chart of lease rates and availability as seen on the chart below. As can be seen, rates especially vary widely even across popular distribution areas. For example lease rates were just $4.77 per square foot in distribution stalwart Atlanta, but a much higher $11.07 in Northern Virginia, as just one comparison.
Meanwhile, warehouse space in the San Francisco peninsula were a whopping $31.77 in Q2 – with availability of just 1.7%. Rates are somewhat high in the Inland Empire area near Los Angeles, at $6.36, but to us surprisingly high in Denver at $8.14. But rates in distribution hub Columbus, OH are just $3.87, CBRE estimates.
Source: CBRE
The good times roll on for distribution center operators, as ecommerce especially continues to drive demand.
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