Nearly 290 million square feet of industrial space came to market across the nation last year. A new report shows that these deliveries absorbed at strong rates, assuaging fears that the red-hot sector was in danger of overbuilding.
According to a new report from CBRE, only 39 percent of the industrial and logistics real estate that developers completed in the U.S. in 2019 remained available. While deliveries outpaced the 255 million square feet of new absorption, robust leasing from e-commerce, retail and other occupiers requiring Class A space kept supply and demand dynamics healthy.
“With national vacancy at 4.4 percent it was becoming difficult for occupiers to find modern space,” said James Breeze, CBRE global head of industrial and logistics research. “This new supply is needed and will keep transaction activity strong, especially for larger deals. The robust activity in newly constructed product also warrants the large amount of ground breakings we continue to see.”
Spec deliveries have remained steady this cycle, but build-to-suit development showed significant gains, helping to pump up the absorption rates of new construction. As users show an amplified need for unique and specific requirements, demand within this segment led to a 28.1 percent share of new construction activity.
Among markets where new development tallied more than 4 million square feet, Kansas City finished the year with the lowest overall vacancy rate at 7.3 percent. And developer interest in the City of Fountains isn’t running dry; Trammell Crow Company, for example, recently broke ground on a $13 million 349,440-square-foot warehouse and distribution facility at KCI Intermodal BusinessCentre.
Other markets that performed well in 2019 included Miami, Baltimore, Greenville, SC and New Jersey with new construction vacancy rates of 12.4, 13.0, 18.7 and 22.2 percent, respectively. Dallas-Fort Worth was the strongest-performing core market last year, with nearly 75 percent of the 25 million square feet completed now occupied or under lease.
“With pre-leasing robust for under-construction projects, the overall vacancy rate is expected to remain in check in the foreseeable future,” said Breeze.
Expect supply fundamentals to remain stable this year, as a third of the 309 million square feet now under construction nationwide is already accounted for. In markets such as Charlotte, Cincinnati, Miami, Savannah and St. Louis, more than half of this space has been pre-leased.
