Record-low vacancies mean that industrial markets will continue to thrive throughout 2017, whether there’s uncertainty in the White House, blips in the stock market or unrest overseas.
That’s the good news from the spring 2017 North America and United Kingdom industrial market report released yesterday by Avison Young.
And in even more good news? Avison Young expects rents to continue to rise in the industrial sector as the demand for new space only rises.
This doesn’t mean that the sector doesn’t face challenges. Avison Young reports that industrial development costs are also rising. That’s because in many markets, land is in short supply. At the same time, developers are working hard to deliver the most modern industrial product possible as the needs of tenants change.
“The industrial property sector’s metrics continue to impress the market as occupiers and investors alike are drawn to the sector’s stability,” said Mark Rose, chairman and chief executive officer of Avison Young, in a written statement.
Rose said that surging demand for online shopping has provided “immense” opportunities in the industrial sector as supply chaings are becoming increasingly complex and tenants are constantly searching for ways to deliver products to their end users in as short a time as possible.
“An increasing urban population base also means feeding the unquenchable demand of a fickle and growing consumer market that demands cost-effective, same-day delivery options,” Rose said.
Of the 55 industrial markets tracked by Avison Young across North America and the U.K., which make up almost 14 billion square feet, vacancy declined in 40 markets, remained unchanged in two and increased in only 13 during the 12-month period ending March 31, 2017.
The analysis also revealed lower year-over-year industrial vacancy rates in 30 of 41 U.S. markets. Overall vacancy averaged 5.3 percent in the U.S. markets tracked by Avison Young, down from 5.9 percent one year earlier.
“Even markets, such as Houston, that were cause for concern in 2016 because of volatile energy prices, reported occupancy gains, robust deliveries and controlled new construction,” said Earl Webb, Avison Young’s president of U.S. operations, in a written statement.
Avison Young said that U.S. markets posted 232 million square feet of net absorption during the 12 months ending March 31, an increase of 12 million square feet when compared to the previous 12-month period. Six markets gained 10 million square feet or more of occupancy, including Chicago, 17 million square feet, and Detroit, 14 million square feet.
In the first quarter of 2017, the overall average asking triple-net rent was $6.97 a square foot, increase of 44 cents from the same period a year earlier. All but two U.S. markets saw rental rate increases.