It looks like new constructions may be a key contributor to curbing tight supply and rising United States rents. CBRE sees the US industrial availability has declined in the first quarter to 9.2 percent, down 20 basis points from the fourth quarter. This has been the 24th consecutive quarter of its availability at a decline. According to the new 2016 industrial index report by CBRE, industrial space in the U.S. declined in the first quarter of 2016 to the lowest level since 2001 and rents remain on an upward trajectory, while new construction is poised to limit both trends over the next two years.
Thanks to e-commerce, the industrial availability has been pushed to unusual lows. Presently, the demand for facilities which are capable of handling same-day delivery fulfillment and reverse logistics is on the rise. Another important factor is the strong dollar which augurs more imports. These imports remain in the distribution system longer than exports which take up more space.
“The market is very strong right now, but we think we’ll start to see a pause as more supply comes online this year and next,” said Jeff Havsy, CBRE’s Americas Chief Economist and Managing Director of CBRE Econometric Advisors. “We also expect that demand might ease a little, because it’s been so strong for so long. You’ll probably see a slight pickup in vacancy this year, but nothing dramatic.”
CBRE also forecasts industrial rents will still continue to rise higher in 2016 and slow down next year. Industrial rents had increased by 5.3 percent last year to $5.74 per square foot. Rent rates have slowed down due to a rise in new construction. New construction had increased by 14 percent last year to 150.5 million square feet. According to CBRE, construction will continue to grow over the next two years, remaining under the 10-year high of 213.5 million square feet delivered in 2006.
E-commerce has pushed industrial availability to unusual lows as demand increases for facilities to handle uses such as same-day delivery fulfillment and reverse logistics. Another factor bolstering demand: The strong dollar augurs more imports, which stay in the distribution system longer than exports and thus require more space.
According to CBRE’s data which spans 57 top U.S. markets, 35 posted a decline in availability in the first quarter from the fourth. Another 10 were unchanged the report highlighted. The report also indicated that twelve saw an increase, due mostly to new construction. Among the largest markets in which availability declined in the first quarter from a year earlier are New York City, down 230 basis points; Detroit, down 140 basis points; Atlanta, down 90 basis points; and Dallas, down 80 basis points.