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So far, industrial real estate has been having a very good 2017. In the first quarter alone the commercial real estate sector posted record levels, realizing historically low vacancies and historically high occupancy gains.
It seems there is no stopping the industrial real estate train. Instead of trusting things will continue, we take a deeper look at current conditions and issues that could affect or alter performance.
In a recent article on Forbes.com, Bisnow discusses the five key trends that investors and CRE players should pay attention to within the industrial real estate industry. So that you don’t have to read the entire article yourself, we digested the information and laid it out for you below.
Wrap you head around this: National industrial real estate vacancy rates reached a 30-year low in 1Q17. 30. Year. Low. Dropping 20 basis points to 5.3%, vacancy levels continue to dramatically decline across the United States.
It should also be noted that this is a whopping 300 basis points below the 10-year historical average of 8.3%.
Industrial real estate occupancy rates are racing past record levels, increasing for the 28th consecutive quarter in 1Q17. This is primarily due to the ever-increasingly high demand from E-commerce.
No surprise that 28 consecutive quarters is the longest industrial real estate expansion on record. This strong expansion is further strengthened with high net absorption, realizing 1.3 billion square feet since 2010, 53.8 million square feet of that realized in 1Q17. We should 1Q17’s net absorption is up, from 49.3 million square feet in 4Q16.
Since E-commerce demand is driving record occupancy gains, it’s no surprise that they are also driving warehouse design changes. To meet the usage needs of E-commerce and online companies, industrial real estate developers are now building warehouses taller in order to best maximize space and house more and more inventory.
These height gains have been critical for warehouse tenants, jumping to 34 feet in 2016. Compare this to the warehouse average of 24 feet high in the 1960s and you can see the only direction industrial real estate is headed…is up.
While technology shifts and disruptions aren’t always good for everyone, they have been particularly beneficial to domestic industrial real estate. Ten-X, the online real estate marketplace, reported in its most recent Market Outlook that the E-commerce impact and cloud-server farm demand are driving intense industrial sector growth.
Markets that have really felt this growth, shown by the high numbers of motivated investors, include Nashville, Phoenix, Oakland, San Diego and Seattle. The U.S. western region as a whole has also felt this impact, benefitting from China’s trade flows.
Speaking of trade flows; recent policies from the current administration threaten to undermine current industrial real estate growth conditions.
With a focus on increasing exports and reducing imports, President Donald Trump in January signed an executive order to rework NAFTA (the North American Free Trade Agreement), which he called “the worst trade deal in history”. Prior to that he abruptly pulled the U.S. out of the Trans-Pacific Partnership, a trade policy between 12 nations.
While the exact impact of these trade policies is yet to be determined, as they firm up you can bet companies (both domestic and international) will start taking a hard, long look at their supply-chain networks.
Though some uncertainty due to trade policies exists, overall the industrial real estate sector is exhibiting peak performance. High occupancy and increased demand means a pipeline that has no signs of stopping. If you are interesting in seeing how industrial real estate in Baton Rouge can bring you high returns, contact us today at 225.367.1515. In the meantime, search through our online CRE database and see if any of our current industrial listings pique your interest. Happy hunting!