Monday Morning Scoop - Here are 5 industrial markets to keep an eye on and why

Here are 5 Industrial Markets to Keep an Eye on and Why

Industrial markets across the U.S. — in primary and tertiary cities, coastal markets and landlocked metros alike — have experienced record-breaking years in the past couple of years.

While some 545 million square feet of warehouse space is under construction across the U.S., according to CBRE Group Inc. (NYSE: CBRE) data, the shifting economy means there may be uneven outcomes for commercial real estate markets nationally, including within the warehouse market.

“It’s hard to tell, with the limited vacancy, delayed supply and unprecedented demand, to anticipate which markets will end up oversaturated,” said Jason Price, senior research director of U.S. industrial at Cushman and Wakefield PLC (NYSE: CWK), in an email. “There will be a better answer towards the end of 2022 (and) beginning of 2023. It is a bit early to tell with the markets as tight as they are, but we are keeping an eye out for sure of instances if they arise.”

Still, there are clues that suggest where the industrial market could stand to strengthen. Price identified five that’ve seen strong net absorption, new tenant demand, vacancy, rent growth, construction pipeline and deliveries, especially in the past two years. They are Phoenix; Columbus, Ohio; Nashville, Tennessee; Savannah, Georgia; and Salt Lake City.

Price said these five markets have a few distinct advantages over more mature coastal and gateway markets. Places like Los Angeles, Chicago and New Jersey have historically been — and remain — the hottest industrial markets, given their access to large ports and major population centers.

But those markets, especially recently, have faced record-tight vacancy and rental-rate surges because of how competitive it’s become. Land is tougher to obtain.

The smaller markets identified by Cushman generally have more land availability for developers, and have had seen pretty robust pipelines in the past three years, especially in respect to their inventories.

“This has helped add Class A logistics supply to those markets briskly, keeping absorption totals healthy for the most part,” Price said.

Why these five?

Phoenix saw more than 57 million square feet of leasing activity driving 51 million square feet of industrial space absorbed between 2019 through 2021, according to Cushman. Developers completed nearly 40 million square feet of new industrial product during that time period, with another 33 million square feet in the pipeline, as of the first quarter of 2022.

Columbus has been singled out as a top market for industrial before, given its prime Midwest location to several population centers. From 2019 to 2021, Columbus saw more than 26 million square feet of new warehouse supply, and has about 14 million square feet of product under development, according to Cushman. Demand for space has been high — 95% of speculative industrial buildings completed last year were pre-leased before completion.

In Nashville, from 2019 to 2021, more than 19 million square feet of industrial space was absorbed, 7 million square feet of which occurred last year alone. Seattle-based Inc. (NYSE: AMZN) has been a key driver of that growth, accounting for 52% of industrial absorption since 2020, Cushman found.

With Amazon pulling back on its warehouse expansion — even subleasing space it had signed on for in some areas of the country — that perhaps raises questions about Nashville’s prospects. But in addition to Amazon, major groups like Walmart Inc. (NYSE: WMT), Chewy Inc. (NYSE: CHWY), FedEx Corp. (NYSE: FDX) and Southerland Inc. have signed substantial warehouse deals there recently.

Savannah, too, has been previously identified by The Business Journals as a top industrial market, given the Port of Savannah’s rising status and growth. In the past three years, Savannah absorbed more than 24 million square feet of industrial real estate while inventory grew by another 25 million square feet, according to Cushman. Savannah’s industrial vacancy rate is 0.5% — one of the lowest in the nation. 

More than 28 million square feet of leasing activity was seen in Salt Lake City in the past three years. Industrial deliveries totaled 15 million square for the same time period, and the region is expected to see another 11 million square feet of new warehouse space in the next few years.

Holistically, there remain more more opportunities than challenges for most industrial markets across the country, Price said.

“We should still see more growth this year, albeit at a much more moderate rate,” he continued. “The rate at which we’ve seen demand, rent growth and occupancy growth is just not sustainable at the record-levels of 2021. However, there’s still enough demand to keep fundamentals at historical levels.”

By: Ashley Fahey
Source: Austin Business Journal