Q1 2022 Outlook: Industrial Investors Remain Bullish
Sales, Leasing, Construction to Continue at Robust Pace
The dramatic shift in consumer buying habits during the pandemic has fueled a massive leasing, construction and investment spree across the U.S. As tenants scramble for modern space to expand their e-commerce footprints, landlords are benefitting from rental rates reaching into the double digit levels in some markets. This is all good news for investors, who continue to pour capital into this favored asset class.
According to a LightBox-SIOR Investor Sentiment Report, investors remain bullish on this sector, despite challenges from port congestion, rising construction costs, and a shortage of labor across many points in the supply chain. Nearly 72% of investors surveyed are predicting significant growth in the industrial sector going into 2022, a sentiment echoed by other industry experts interviewed for the report.
Among the key fundamentals are:
- E-commerce sales grew by 40% over the past year and will continue to drive industrial space usage for the foreseeable future.
- Vacancy rates are at record lows in many markets, including Los Angeles and the Inland Empire, where the strength of the ports and proximity to large population pools has helped push vacancy down to around 1%. Many other markets are seeing vacancies from 3% (Charleston, Sacramento and Las Vegas) to 4% (Nashville, Miami and St. Louis).
- Rents are expected to rise by 5% to 7% or more in 2022. Occupier demand, led by retailers and logistics providers, will push rents higher; they could reach double digits in many markets. Asset pricing could increase the same or more. Among the top markets for year-over-year rent growth in 2021 are Northern New Jersey (33.3%), Inland Empire (28.3%), Philadelphia (25.9%) and Nashville (20.3%).
- Net absorption remains strong and was tracked at 231 million square feet at mid-year 2021. This activity is notable given the 152 million square feet of new space completed during the same time period and 420 million square feet currently in the pipeline. Among the top markets for construction are Dallas Fort-Worth, Atlanta, and Chicago.
- Supply chain disruption, rising construction costs and material and labor shortages are key headwinds for industrial real estate. Over the past year, the industry has experienced an unprecedented level of port congestion, supply and labor shortages, and increases in the cost of steel, lumber and plywood and other materials. Given the robust level of industrial demand, however, those headwinds are not expected to dampen investor enthusiasm for this sector.
“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,” says Tina Lichens, COO, LightBox. “Industrial is attracting significant amounts of domestic and foreign capital and is well-positioned to withstand supply chain disruption or other volatility that might occur.”
