Forget Musk vs. Bezos, SpaceX vs. Blue Origin and Capt. Kirk actually flying high above the stratosphere. The “massive race for space” is down on the ground in the U.S., says a new report from the Society of Industrial & Office Realtors and LightBox.
The report notes that industrial sales this year could top $120 billion (the record set in 2019), with average rents rising by 5 percent to 7 percent, or even more, and purchase prices increasing by at least that rate—all despite varied headwinds.
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By mid-2021 industrial sales volume had reached almost $52 billion, and the average price per square foot had risen by nearly 25 percent year-over-year, to $120.
The reasons for this bullishness are familiar. E-commerce was already booming, and the pandemic has only bolstered it. In the report’s words, “This positive outlook is supported by the expectation that many pandemic-induced online buying habits will become ingrained patterns.”
E-commerce sales have grown by 40 percent over the past year and are expected to hit $1.1 billion by 2025.
The October LightBox-SIOR Industrial Investor Sentiment Report is based on a survey of leading CRE investors, brokers and developers. In connection with today’s start of CREate 360, SIOR’s first in-person global event in nearly two years, in Nashville, Commercial Property Executive was given exclusive initial access to the report.
Rent increases could reach double digits in many metros. The top markets for year-over-year rent growth in 2021 include Northern New Jersey (33.3 percent), the Inland Empire (28.3 percent), Philadelphia (25.9 percent) and Nashville, Tenn. (20.3 percent). These are often in sync with super-low average vacancies; Los Angeles and the Inland Empire, for example, are seeing vacancy around 1 percent.
There’s especially outsized demand for large logistics portfolios, “as they allow investors to scale up quickly in this coveted sector,” the report says. It cites Blackstone’s recent acquisition of Toronto-based WPT Industrial REIT in a $3.1 billion deal that encompassed 110 properties in 19 states.
Industrial construction is working to keep up with surging demand. About 151.5 million square feet was completed in the first half of this year, and the development pipeline totals about 410 million square feet, with an impressive 60 percent of it already preleased. Some of the top markets for construction are Dallas–Fort Worth, Atlanta and Chicago.
Optimism despite headwinds
And that is where survey participants see the strongest headwinds—in rising construction costs and in the costs and availability of labor, as well as some materials. These issues, in their judgment, well outrank concerns about intermodal port congestion and other supply chain disruptions.
For example, prices for materials such as steel, lumber and plywood have increased by 5 percent to 60 percent or more.
Still, none of these difficulties are expected to “dampen investor enthusiasm for this sector,” according to the report.
“As e-commerce continues to transform our economy, investors are looking for every opportunity to gain entry or expand their positions in the industrial sector,” said Tina Lichens, senior vice president of broker operations at LightBox.
SIOR CEO Robert Thornburgh offers this advice: “If you are looking to lease or purchase industrial real estate in any major market, welcome to the extensive waiting list of other businesses all seeking similar solutions for their space needs. Supply and demand imbalances are the most significant we have ever seen for industrial space.”
Read the full report by SIOR-LightBox.