Industrial real estate activity in the second quarter indicates tight market conditions, reports JLL

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The industrial real estate market saw another batch of strong data for the second quarter, according to data released this week by Los Angeles-based industrial real estate firm JLL.

In its Q2 2021 U.S. Industry Outlook, JLL highlighted various highlights, including:

  • the quarterly vacancy rate reached one of its lowest quarterly averages, at 4.8%;
  • quarterly rents among the highest on record, at $6.62 per square foot, and annual rents increasing at a rate of 5.1%, with JLL expecting industrial rents to continue to grow between 4% and 7%;
  • and logistics and distribution was the top business segment for the quarter, accounting for 60.7 million square feet of leases, for the second quarter, and 24.9% of total rental volume for the first half of 2021

In the report, Mehtab Randhawa, director of industrial research for JLL in the United States, wrote that the combination of leasing and construction activity during the quarter helped boost industrial real estate momentum, with extremely tight market availability, due to low historical vacancy and new market. high rents. Additionally, she added that as steel shortages and price fluctuations continue, there has been minimal impact on the construction pipeline, which saw 69 million square feet delivered in the second quarter.

“With increased competition in the industrial market, buildings don’t sit vacant for long and vacancy rates continue to decline as available supply dwindles,” Randhawa said. “As a result, tenants may find they have to sacrifice certain needs, whether building features or location, when looking for space. The industrial lease environment in Q2 2021 appeared to favor landlords, giving them the opportunity to work with tenants on lease terms and agreements. Average lease lengths have remained constant for tenants (68 months), in part due to the substantial rent increases markets have seen over the past decade and the location trade-off some tenants have to make in the short term. due to the limited options available in the market.”

The impact of supply chain and logistics operations was prominent in the report, with JLL observing that as dwell times at ports decreased, rail journey times began to increase, the lack of container storage space being a bottleneck. And the company added that now, more than ever, city logistics is at the forefront, and the demand for third-party logistics companies to manage the distribution, warehousing and fulfillment of goods has become essential to track consumer buying habits.

“Rapid changes in consumer buying habits continue to add pressure to the global supply chain and continue to significantly increase the volume of goods imported into the United States,” said Randhawa and Kelsey Rogers, Senior Research Analyst, Industry, Americas at JLL. “As a result, the demand for container storage space continues to grow. Additionally, current zoning barriers and constrained capacity may impact future demand for container storage space. For users, it is essential for them to assess their current supply chains. It is even more important now to see where the occupants source and distribute their goods. Investments in supply chains have steadily increased over the past decade. These disruptions (shipment blockages, weather disruptions, etc.) add pressure to shift the global supply chain and call on occupants to hold inventory closer to avoid future disruptions.

With net uptake exceeding deliveries — as more than 69 million square feet have been delivered — and 408.6 million square feet currently under construction, JLL said the pipeline shows no signs of slowing down, which could lead to a potential shortage of supply linked to the continued increase in demand for industrial products. For the second quarter, net absorption was near a record level at 107 million square feet, and year-to-date is close to 200 million square feet and pegged to the highest levels. high of 2020.

“In the near term, the industrial pipeline has 408.6 million square feet currently under construction, which will help meet much of the demand we are seeing,” Randhawa and Rogers said. “The long-term effects of net absorption exceeding deliveries include limited supply for tenants, as well as limited land availability. As a result, this could increase competition on the rental side and justify an undersupplied industrial market. »

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

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