DISRUPTION 2020 – INDUSTRIAL PACE

DISRUPTION 2020

Industrial Sector on record pace.

The U.S. industrial sector continues to perform exceptionally well despite headwinds facing commercial real estate. Robust net absorption, rent growth, construction, and occupancy all remain healthy, fueled by the continued growth of e-commerce and an increase in demand for warehouse and distribution space. E-commerce sales grew 31.8% in Q2 2020 (the most recent data available) from the same time last year and now represent 16.1% of total non-auto retail sales. E-commerce will continue to be a driving force in industrial real estate for the foreseeable future.

The industrial pipeline is expected to remain full in the quarters ahead. Despite the headwinds facing the industrial sector, including the ongoing pandemic and tensions surrounding the U.S. presidential election, interest in warehouses and industrial buildings is expected to remain strong as companies continue to adjust distribution networks to accommodate increasing e-commerce demand.

As e-commerce continues to be preferred by many consumers, Amazon’s explosive growth is expected to continue, and it recently announced that third quarter sales surged 37% to a record $96.2 billion. The company plans to add 100,000 seasonal workers in the U.S. and Canada to meet holiday demand, as sales volumes are expected to increase even more by year-end. As Amazon continues to seek space in nearly every major market, the strength of U.S. industrial real estate will continue to outpace that of other commercial sectors. Holiday sales are expected to provide an additional boost to the industrial market in the fourth quarter.

Q3 2020 Headline Numbers

The U.S. industrial vacancy rate rose for the fifth consecutive quarter to 5.6%, mostly due to vacant speculative deliveries, the first time it has topped 5.5% since midyear 2016.

Net absorption remained positive with occupancy gains of 164.7 million SF year-to-date, 3.3% higher than the same time a year ago.

Third quarter absorption of 57.2 million SF was

up 35.3% over the second quarter — which was expected to be a strikingly slow quarter — as the market began to recover from the negative effects of the global pandemic.

The Southern U.S. dominated activity at the

close of the third quarter, with 40% of both new supply added and occupancy growth in the U.S. year-to-date. The region’s logistics advantages and growing population continue to attract occupiers.

According to Real Capital Analytics, however, quarterly investment sales volume continued to soften as year-to-date transactions totaled

$59.9 billion — a 25% decrease from 2019.

Average pricing increased to $101.40/SF — only the second time average square-foot pricing exceeded $100.

Year-to-date, new industrial supply hit a record high in 2020, surpassing 2019 by 27%. A total of 252 million SF was delivered at the end of the third quarter, compared to approximately 198 million SF in both 2019 and 2018.

Development stayed the course and totaled

328.3 million SF under construction at the close

of the quarter, broadly in line with construction at this time last year.