Data released today by Chicago-based industrial real estate firm JLL highlighted very strong fundamentals for the US-based industrial real estate market for the first quarter.
In its “US Industrial Outlook: Q1 2022,” JLL observed a variety of takeaways reflecting how competitive market conditions continue to give owners what JLL Senior Director Mehtab Randhawa called the market advantage. market, while putting upward pressure on asking rents.
Key takeaways cited by JLL in the report included:
- the national vacancy rate, despite an influx of new deliveries, fell again, for the sixth consecutive quarter, from 3.8% to 3.4%;
- average asking rent increased to $7.62 per square foot (psf), up 7% from the fourth quarter, marking the largest quarter-over-quarter increase dating back to at least 2000;
- year-to-date net absorption – at 110,758,069 marked the highest third quarter for net absorption on record and the highest of any first quarter, after the total of 141.8 million fourth quarter square feet;
- year-to-date construction deliveries were 89,992,432, with properties under construction at 530,474,986, with a quarter of the latter tally in the 1 million-foot “mega box” size category squares or more;
- developers delivered 90 million square feet of new inventory in the first quarter, consistent with the fourth quarter of 2022;
- port markets maintained a price premium over non-port markets, with rental growth reaching a 23% year-on-year gain; and
- Q1 overall deal volume of $33.2 billion hit its second-highest Q1 total ever
“Occupants’ sticker shock isn’t just about asking for rents, though,” Randhawa wrote in the report. “Those looking to sign new leases in the least vacant markets face steeper annual rent increases and minimal concessions. Companies with a business imperative to enter these hot markets are willing to pay the price, while more location-flexible occupiers explore their options in markets where rents are lower, labor costs -lower labor and more abundant new products. This trend is fueling a shift in demand towards markets in the South-East and Center-South regions. »
Share of tenants: JLL observed that 3PLs paced first-quarter leasing activity (as a percentage of total square feet leased) at 14%, followed by logistics and distribution at 12%. Rounding out the top six were: building materials and building accessories, at 12%; food and beverages, 10%; retailer (traditional), 8%; and e-commerce, 8%. And he added that the overall rental volume has seen an annual increase of 17%.
As for what he called key growth industries, JLL said 3PLs lead the way, with a 60% annual gain, for annual growth in square feet rented, followed by building materials and fixtures. construction, 32%; and food and beverages, 23%. And, looking at traditional retailers, JLL said that while they saw a lull in rentals, at the start of the pandemic, JLL Research noted that rental activity in the sector increased by 38.4%. over the past three years. He said strong demand from home improvement retailers, like Home Depot and Lowe’s, was a key factor in this sector leading e-commerce in the first quarter.
JLL’s industry research team said 3PLs signed leases for almost 60% more space than in the first quarter of 2021, supported by continued outsourcing of supply chain operations from e-commerce and other retailers.
Region by region: Looking at square footage under construction as a percentage of current inventory by region, JLL said South Central led the way at 6.4%, followed by Mid-Atlantic at 4.9%, Northeast at 3.8%, Southeast at 3.7%, West at 3.6%, and Midwest and Great Lakes at 2.8%, with the average US total at 3 .8%.
When asked what drove the 7% quarter-over-quarter increase in average asking rent of $7.62 psf, JLL’s industry research team explained that during the first quarter, vacancies continued to decline and pent-up demand from the pandemic kept rental volumes high. .
“The strong fundamentals and competitive environment seen this quarter put upward pressure on asking rents,” they said. “Additionally, average asking rents on new buildings delivered to the market have pushed overall asking rents to new highs.”
JLL’s Randhawa noting that more location-flexible occupiers are exploring their options in markets with cheaper rents, lower labor costs and more abundant new product, the team said it’s It’s a by-product of tenants having the flexibility to migrate to low-cost markets with labor. availablity.
“For example, we’re seeing tenants moving from New York and New Jersey markets to the Southeast,” the team said. “In contrast, tenants whose operations are closely tied to ports stay because it makes sense financially and because of rising drayage costs. We have seen this happen with tenants from Los Angeles and Long Beach, migrating to Phoenix, Reno, Central Valley South.
JLL’s industry research team said the high rental volumes seen in 2021 continue to push net uptake in 2022 as tenants physically occupied their space. They added that historically, first-quarter absorption totals have been lower than other quarters due to cold weather conditions, which play a role in move-in delays.
What is the next?: Looking ahead, JLL has released a bullish outlook for the industrial real estate market going forward.
“Despite some expected price pullback on larger deals ($150m+), due to the prevalence of funding, deal volume is expected to remain robust throughout the year,” the team said. of industrial research of JLL. “With higher interest rates putting downward pressure on prices, cash-focused buyers are likely to be active and competitive on trades, so trading speed will be maintained throughout. the year 2022.”
About the Author
Jeff Berman, Group News Editor Jeff Berman is Group News Editor for Logistics management, Modern material handlingand Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine where he covers all aspects of the supply chain, logistics, freight forwarding and material handling industries on a daily basis. Contact Jeff Berman