U.S. industrial rents continue to see strong gains, reports CBRE

With ongoing elevated demand buoyed by strong consumer spending activity, especially related to e-commerce, there has been a subsequent impact on United States average industrial asking rents, according to research recently issued by Los Angeles-based industrial real estate developer CBRE.

In its “U.S. MarketFlash: Industrial Taking Rents Now Growing Faster Than Asking Rents, Reflecting Voracious Demand,” CBRE reported that average industrial asking rents headed up by a record 8.3% in the fourth quarter of 2020 and by 7.1% in the first quarter of 2021, with asking rents averaging 6.8% over the past five years.

CBRE also observed that taking rents are seeing significant growth, with first-year base rents on leases of 12 months or more seeing a 9.7% annual increased through the first five months of 2021. That growth is being paced by bulk warehouses seeing gains of 13.2% for leases of 500,000 square-feet or more and 11.6% for leases between 100,000 and 499,999 square-feet.

U.S.-based markets with the most significant rent growth were those in close proximity to growing population centers, as well as those with inland port hubs, according to CBRE.

Northern New Jersey led all markets, with base rent growth up 33.3% annually, and Southern California’s Inland Empire was up 24.1%

CBRE said that each of these markets “have long been regional distribution hubs because of their proximity to the country’s largest seaports and metropolitan areas,” and “[t]hey also have some of the lowest industrial vacancy rates in the country with the Inland Empire at 1.5% and Northern New Jersey at 2.2%. The need to have facilities in these markets, coupled with record low industry rates, has often led to bidding wars among occupiers that are driving up rental rates.”

Rounding out the top five U.S. markets for annual base rent growth were: Philadelphia at 19.7%, Louisville at 19.7%, and Orange County at 16.9%.

“With continued near-record low vacancy rates, taking rent growth will outpace asking rent growth for the foreseeable future,” wrote CBRE. “Consequently, taking rents will remain a better gauge of the market’s strength than more traditional metrics.”

E-commerce impact:Late last month, CBRE reported that the main finding of report it issued, entitled“Global E-Commerce Outlook: What is driving E-Commerce Growth in Different Markets?”, stated that with e-commerce penetration poised to hit 26% of total retail sales by as soon as 2025, the United States will require an additional 330 million square-feet of distribution space to keep up with the projected e-commerce demand over that period.

额外的3.3亿平方英尺的账户for 27% of total projected overall demand for United States industrial real estate space through 2025, according to CBRE.

该公司explained that its forecast, which is based on Euromonitor data for 2020, estimates that every additional $1 billion of e-commerce sales accounts for 1 million square-feet of new distribution space. And it also noted that U.S. e-commerce sales are pegged to head up $330 billion from 2020-2025, with global e-commerce sales, for the same period, pegged to increase by $1.5 trillion, which, in turn, will require another $1.5 billion square-feet of warehouse and distribution space, with the United States and Mainland China collectively representing 57% of global e-commerce sales.

“While there is a sizable construction pipeline in the U.S., much of that new space already is leased to meet the demand of the past few years,” said James Breeze, Senior Director and Global Head of Industrial & Logistics Research for CBRE, in a statement. “Moving forward, the challenge in many U.S. and global markets will be to produce enough new facilities to meet this rapidly expanding market. It’s important to bear in mind that e-commerce is only a portion of the overall demand for distribution facilities. Traditional retailers, third party logistics companies and others will also be demand catalysts. If developers can’t build facilities fast enough, we could see rental rates push well beyond their current record highs.”

CBRE Director of Research Matt Walaszek toldLMthe pandemic clearly accelerated this trend, in terms of how far ahead of schedule CBRE’s projections are, noting that some estimates say it pulled forward e-commerce growth by three-to-five years.

“This was happening already, but the pandemic certainly led to a proliferation of e-commerce as older generations adopted this new way of shopping,” he said. “In-store sales are rebounding as economies open back up, however, we believe e-commerce will continue on an upward trajectory more so than was previously estimated.”