Limited Supply Spurs Largest Annual Rent Growth Since 2018, Up to $7.39 PSF
May 04, 2022
HOUSTON – Demand for industrial product intensifies as construction volume sets a new record, according to Transwestern’s first quarter U.S. Industrial Market Report. Product under construction soared to 800 million square feet, up nearly 250 million square feet from a year prior and 66% higher than pre-pandemic levels. The Sun Belt continues to experience striking amounts of growth with Savannah, Georgia; Charleston, South Carolina; and Phoenix all reporting under construction stock exceeding 10% of total inventory.
“The magnitude of product under construction nationwide underscores the unsatiable demand for industrial real estate,” said Matt Dolly, Research Director at Transwestern. “Rents continue to increase as markets are reporting record low vacancy rates – in some areas essentially zero for modern, well-equipped space. E-commerce and supply chain disruption will continue to be the primary drivers for new development; however, land constraints and increased regulation will likely prompt new development toward markets with less dense population centers.”
Less than 100 million square feet of new product delivered for the first time since first quarter 2021. Constrained supply pushed the average industrial asking rent to $7.39 per square foot, recording the highest annual increase since year-end 2018. Of 44 tracked markets, 23 reported double-digit rent hikes, with five markets exceeding 20%: East Bay-Oakland, California (35.4%); Los Angeles (32.4%); Las Vegas (27.0%); Philadelphia (20.9%); and Tampa, Florida (20.9%). In markets where rent growth moderated, such as Austin, Texas; Savannah; and Nashville, Tennessee, recent additions to inventory was a contributing factor.
Vacancy dropped to 4.1% during the quarter, its sixth consecutive decrease. Five markets reported direct vacancy at or below 2.0%, including the Inland Empire, Savannah, Los Angeles, Orange County and Las Vegas. Other supply-constrained markets with less than 3.0% of unoccupied space included Columbus, Ohio; Miami; and New Jersey.
Occupancy grew by 110 million square feet, surpassing 100 million square feet for the sixth consecutive quarter, though ebbing from record-setting net absorption levels above 200 million square feet during the previous two quarters. When looking at 12-month totals, occupancy growth was higher for over 95% of tracked markets compared to their three-year average.
“Insufficient supply in several core markets contributed to the deceleration in occupancy gains during the past three months. We anticipate sustained growth as new product comes online,” Dolly said.
Download the full first quarter 2022 U.S. industrial market report here.
About Transwestern Real Estate Services
Transwestern Real Estate Services (TRS) adds value for investors, owners and occupiers of all commercial property types through a comprehensive perspective and by providing solutions grounded in sound market intelligence. Part of the Transwestern companies, the firm applies a consultative approach to Agency Leasing, Asset Services, Tenant Advisory + Workplace Solutions, Capital Markets, and Research & Investment Analytics.
The privately held Transwestern companies have been delivering a higher level of personalized service and innovative real estate solutions since 1978. Through an integrated, customized approach that begins with good ideas, the firm drives value for clients across commercial real estate services, development, and investment management. Operating from 33 U.S. offices, Transwestern extends its platform capabilities globally through strategic alliance partners whose unique geographic, cultural, and business expertise fuels creative solutions. Learn more at transwestern.com and @Transwestern.