The increasing demand for industrial space continues as consumer consumption habits tend towards convenient online shopping. With the current state of e-commerce and last mile demand, industry remains the market with the strongest fundamentals.
From Q2 2020 to September 28, 2021, according to CoStar® market data, more than 518 million square feet of industrial space was absorbed by the market (positive net absorption). Of the 518 million square feet, the majority, 94% or 486 million square feet, is logistics space. The industrial vacancy rate has fallen to 4.6% (5.3% in Q1 2020) as the downward pressure is mainly due to higher demand for high quality industrial space than supply can handle, reflecting the acceleration of the e- Commerce is due.
Starting September 28, 2021, Rochester, NY; Florence Muscle Shoals, AL; San Jose, CA; Rochester, MN; San Francisco, California; Jackson, MS; Providence, RI; Hanford-Corcoran, CA; and Mansfield, Ohio saw the largest decrease in occupancy over a 12-month period. Of particular note is that of the top 10 markets with the largest deficit in net absorption over the past 12 months, 30% are in the West, and California in particular. According to CoStar® market data, 86 of the 390 covered markets have returned industrial space to the market (negative net absorption) and of the markets that returned industrial space to the market, 4 industrial spaces have lost over 1 million square feet on a net basis over the past 12 months ended May 21st September.
Utilization in both gateway cities and secondary markets is increasing, with the largest increases being in Dallas-Forth Worth, TX; Chicago, Illinois; Inland Empire, California; Atlanta, GA; Houston, Texas; Phoenix, AZ; Columbus, OH; Los Angeles, California; Memphis, TN; and Indianapolis, IN, each having at least 10 million square feet of industrial space.
Persistently tense market conditions and increased demand for industrial space led to an increase in rental growth as the average asking rent rose to 6.9% year-on-year, compared with 4.6% in the second quarter of 2020 and 5.6% in the first quarter of 2021 . from the second quarter of 2021. As of September 28, logistics rents rose by 7.9%, compared to 6.6% in the second quarter of 2021 and from 5.0% in the second quarter of 2020. Flexible space and specialized industrial space rose by 4.7% and 5.8%.
According to CoStar® data, year-over-year industrial rents are in all 390 markets with the highest rent increases in Northern New Jersey (13.0%), Miami (12.7%), Philadelphia (12.0%), Inland Empire (11, 4%), Phoenix (11.2%), Salt Lake City (10.9%), Columbus (10.7%), Atlanta (10.3%), Chambersburg-Waynesboro (9.8%) and Orlando ( 9.8%).
The solid demand for industrial space will continue. Net absorption for industrial space has already exceeded 339 million square feet in 2021, with the year expected to end at a high level. As new listings hit the market, the overall vacancy rate will face some upward pressure as quality space gives users more options, while asking rents will continue their upward trend as positive year-over-year growth continues for the remainder of 2021 and above out.