Things are looking good for the industrial real estate sector, which is hitting record lows in terms of nationwide vacancies as well as record net occupancy gains across the country. Let’s take a more detailed look at the current state of the market and its demand – and assess whether new construction can keep up with that demand. The five things you need to know are:
Vacancies Haven’t Been This Low in Three Decades
Ronald Reagan was in office when we were last seeing numbers like this. In the first quarter 2017, we saw vacancies plunge nationwide by 20 basis points, down to 5.3 percent. We’re talking a 300-point basis point drop.
E-Commerce Demand is Fueling Taller Warehouse Construction
Maximizing space is looking like the name of the game these days. This demand is particularly stoked by online entities as well as e-commerce firms, which have specific needs for inventory space. One technique that is getting more use is the creation of mezzanine levels to store said inventory. Compare an average of 24 feet in height for warehouses in the 1960s, while these days it’s closer to 34 feet tall.
Gains Still Taking Place in Terms of Record Net Occupancy
We’re also seeing e-commerce demand in the industrial sector putting pressure on occupancy, which in turn is exceeding past record levels. Specifically, we saw net occupancy gains jump up in the first quarter 2017 for the 28th consecutive quarter, an impressive rate by any measure and the longest such expansion on record.
During this time, more than 1.3 billion square feet came online since 2010, with the sector absorbing 58.8 million square feet during the last quarter. That’s an increase from year-end 2016, when 49.3 million square feet were absorbed, despite the fact that it’s also a 14.4 percent drop year over year.
Trump’s “America First” Policy Creating International Uncertainty
Donald Trump’s focus on the United States in his “America First” agenda means that the new presidential administration is changing trade deals that are already in place – boosting exports, cutting imports. Trump is particularly critical of the North American Free Trade Agreement (“the worst trade deal in history”) and has called to essentially gut it. Trump has also pulled the United States from the Trans-Pacific Partnership, a consortium of 12 nations negotiated by President Barack Obama. As this activity continues to unfold, firms will undoubtedly be reevaluating their supply-chain networks and costs.
Sector Benefits from Tech Disruptions
The greater the quake, the better the results – at least that’s the case when it comes to seismic shifts and disruptions courtesy of technology. The cities of Phoenix, Oakland, Nashville, San Diego, and Seattle have particularly seen growth spurred by conditions including cloud-server farms and the continuing impact of e-commerce. In addition, the U.S. West is finding benefits in trade with China – though this latter factor is threatened by the Trump administration’s activities as detailed above.