The industrial sector has experienced rapid growth over the past few years, and experts are evaluating whether the positive trends are temporary or likely to continue down the road.

YardiMatrix, a commercial real estate research firm, reports that industrial demand will remain strong for a minimum of a couple more years due to promising retail sales, housing starts, and personal income for years to come. However, even with 290 million square feet added to the sector and an expected 350-370 million square feet added each year until 2026, demand may exceed space.

The following have contributed to the industrial sector’s current state:

• E-commerce growth
• Retail sales
• Manufacturing
• Cold storage
• Automobiles
• Tires and parts
• Materials/construction
• Medical industries

E-commerce stands out due to the notable rise in sales compared to the past few decades. It accounted for 13.3% of retail sales in Q2 of 2021, contributing more than in Q1 of 2010 (4.2%) and Q1 of 2000 (0.8%). Not only has e-commerce achieved a quarterly record of $222M this year, but it has also impacted third-party logistics providers.

YardiMatrix explains that this rise has led to an increased demand for modern facilities that support technology we see third-party providers investing in such as AI and robotics fulfillment mechanisms. According to NAIOP, over 60% of industrial space demand is attributed to 3PLs. Amazon, FedEx, UPS, and DHL among other companies have fueled the need for space.

Industrial commercial real estate will also be shaped by trends related to company size, metro areas, and rents.

Company size

Smaller companies such as those pertaining to home improvement, health care supply, and local contractors are occupying more industrial space than before. Companies of this size are commonly found in multi-tenant spaces that represent over 40% of industrial square footage among the top 30 metros in the country.

Metro areas

YardiMatrix finds that industrial supply growth is on track to remain strong through 2026 based on an analysis of housing starts, retail and wholesale inventories, retail sales, personal income, and weighted import and export volumes. This report reveals that four metro areas will combine to represent 25% of industrial supply growth: Dallas (161 million square feet), Chicago (128 million square feet), the Inland Empire (123 million square feet), and Phoenix (107 million square feet).

Rents

The demand for space has led to rising rents across the country. In the Inland Empire, rents have increased 6.9% while vacancy has dropped to 1.4%. Steady rent growth at or above 5% is seen in Los Angeles, Nashville, Seattle, and the Bay Area. Across the country, vacancies are at 5.8%.

We look forward to learning more about where the industrial sector stands during a period of unprecedented growth. To read our full source, click HERE.