The robust growth in e-commerce during the pandemic is fueling an unprecedented race for space in the industrial sector and pushing investment sales activity to record levels.
According to a newly released LightBox-SIOR Industrial Investor Sentiment Report, vacancy rates are below 4 percent in many markets and 2021 investment sales activity is expected to exceed the record $120 billion set in 2019.
According to the report, investors remain bullish on the outlook for the industrial sector going into 2022, with 71.7 percent of survey respondents expecting investment levels to increase and 49 percent of those respondents predicting a significant increase.
Another 24.3 percent predicted the levels will remain the same. Only 4 percent of respondents expect a decrease in activity. Industry research shows that mid-year 2021 industrial sales volume reached nearly $52 billion, with the average sales price rising nearly 25 percent year-over-year to $120 per square foot.
Midwest markets show low vacancy
As Chicago continues its industrial growth streak, there is also significant activity in many secondary and tertiary markets in the Midwest. According to CBRE Q2 2021 research, the following Midwest cities have low vacancy rates: Detroit (2.1 percent), Chicago (2.9 percent), Milwaukee (3.1 percent), Louisville (3.4 percent) and St. Louis (4 percent).
While the industry is experiencing notable headwinds from supply chain disruption, rising construction costs and labor issues, investors remain bullish on the sector’s long-term outlook.
“As e-commerce continues to transform our economy, investors are looking for every opportunity to gain entry or expand their positions in the industrial sector,” says Tina Lichens, Senior Vice President, Broker Operations, LightBox. “The industrial sector is attracting significant amounts of domestic and foreign capital and is well-positioned to withstand supply chain disruption or other volatility that might occur.”
The report incorporates views from leading commercial real estate investors, brokers, and development professionals across the United States.
Key findings of the 2021 LightBox-SIOR Investment Sentiment Report include:
- E-commerce will continue to drive industrial space usage for the foreseeable future. E-commerce sales grew by 40 percent over the past year and are expected to reach $1.1 billion by 2025.
- Rents are expected to rise by 5 percent to 7 percent or more in 2022. Approximately 60 percent of survey respondents predicted rental rate increases of more than 5 percent, for example. Occupier demand, led by retailers and logistics providers, will push rents higher; rates could reach double digits in many markets. Asset pricing could increase the same or more. Among the top Midwest markets for year-over-year rent growth in 2021 is Louisville (20.2 percent), according to Colliers research.
- Industrial construction continues at a strong pace, with 151.5 million square feet completed in the first half of 2021. The development pipeline is 410 million square feet, with 60 percent of it pre-leased. Among the top Midwest markets for buildings under construction are: Chicago (30.1 million square feet), Indianapolis (19.3 million square feet) and Columbus (10.1 million square feet), according to Colliers research.
- Indianapolis and Columbus are among the top secondary markets for industrial growth — along with Kansas City, Louisville, and Nashville.
