Industrial and logistics (I&L) real estate remained on a solid growth path for the third quarter, according to research recently issued by Los Angeles-based industrial real estate firm CBRE.
After seeing the second quarter halt what the firm called a historic run of consecutive quarters of declining availability at 34, its longest stretch going back to when it first started tracking this data in 1998, the third quarter availability rate, at 7.2%, was essentially flat, compared to the second quarter’s 7.1%. CBRE defines availability as the sum of vacant space plus space that is currently occupied but otherwise being marketed for use by new tenants.
Other key quarterly data findings included:
the I&L overall vacancy rate was up ten basis points to 4.4%, paced by an increase in new completions;
net absorption came in at 45.4 million square-feet (MSF) for the quarter, up 16.8% compared to the second quarter (the 38th consecutive quarter of positive net absorption), and 204.6 MSF on a rolling 12-month basis;
the 55.7 MSF of new supply delivered in the third quarter (224.2 MSF on a rolling 12-month basis) was up 12.3% compared to the second quarter and down 11.2% annually; and
net asking rents headed up 1.3% from the second quarter to the third quarter, which CBRE said is the highest level since it began tracking this metric in 1989, with rents up 5.7% annually, an increase of more than 2% above the annual growth rate going back to 2012
CBRE said in the report that lower 2019 GDP (it expects GDP for the year to come in at 2.2% (down from 2018’s 2.9%), has not had a dramatic impact on I&L market performance, due largely to strong jobs and wage growth. And it added that e-commerce, food and beverage, and home improvement shippers remain the main drivers for leasing activity, with many of these shippers expanding in various industrial hubs.
“Consumer sentiment remains strong and the unemployment rate is at a 50-year low of 3.5%,” the report stated. “This, coupled with rising business inventories and industrial production, is highly supportive of the I&L sector. With continued high levels of user demand and more available space options due to recent deliveries, strong gains in net absorption should occur in Q4.”
In a previous interview, CBRE Head of Americas Research and Global Chief Economist Richard Barkham said that the flattening out of availability was in line with a long-anticipated forecast by CBRE.
“In the future this might provide respite for e-commerce companies and other users that have faced many years with scant availability of space,” said Barkham. “At the moment, though, the market remains quite tight. We do expect the factors driving demand to ease slightly in the coming quarters, as economic growth slows. This won’t be anything dramatic, as the overall economy is in good shape. But market conditions will ease slightly, particularly for larger units.”
Earlier this year, CBRE said that, for the remainder of 2019, underlying conditions for the industrial sector remain solid, with what it called a healthy outlook, despite gradually fading fiscal support and likely slower global trade, and a more dovish-to-neutral outlook for monetary policy. Positive factors it noted included a still robust labor market, modest wage growth, and still resilient consumer activity.
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