Warehouses will be a tough find through 2023
JLL sees industrial rents up 8%-plus
The industrial real estate market will likely see low vacancies and high rents for at least another two years, according to a report from commercial real estate services firm JLL Inc.
On the demand side, companies are taking on larger inventory positions to avoid future supply shocks and stockouts, which have been prevalent throughout the pandemic. Further, e-commerce platforms require incremental inventories positioned closer to the end consumer in order to meet tight delivery schedules. In the shorter term, some are also dealing with a holiday hangover as merchandise destined for shelves in November and December was stuck in transit too long, missing the year’s biggest buying window.
The other part of the equation, supply, remains constrained as new facility developments have been delayed by materials and labor shortages, a common hallmark of the COVID era. JLL said construction timelines are currently stretched to as long as two years, up from nine months historically.
“There isn’t a lot of availability in the industrial market, and many tenants are being forced to expand or relocate to secondary and tertiary markets with vacancies at the lowest on record,” a JLL (NYSE: JLL) research report read. “The construction pipeline is robust, with many projects set to deliver in the coming year; however, it is unable to keep up with the rapidly increasing demand, and the backlog of current projects will push anything new out.”
Available industrial space in the U.S. hit an all-time low, ending 2021 at 3.4%, according to logistics real estate giant Prologis Inc. (NYSE: PLD). JLL expects vacancies to remain below 4% moving forward.
“Demand from industrial uses, coupled with rising demand from traffic-clogged ports, has resulted in near-zero vacancy rates in many urban logistics markets,” the report added. “Urban coastal markets including Los Angeles and New Jersey and inland distribution hubs such as Salt Lake City and Columbus have seen the lowest vacancies on record.”
Since 2010, demand for industrial space in the U.S. has jumped 24%, however supply is up only 18% over the same time, JLL said. Markets like Chicago, California’s Inland Empire, Dallas-Fort Worth and Pennsylvania have experienced the biggest growth.
