HOUSTON — Demand for industrial property intensified as construction volume set a new record in the first quarter, according to Transwestern’s latest U.S. Industrial Market Report.
Projects under construction soared to 800 million square-feet, up nearly 250 million square-feet from the year prior and 66% higher than pre-pandemic levels. The Sun Belt continued to experience striking amounts of growth; Savannah, Georgia, Charleston, South Carolina, and Phoenix all reported under-construction stock exceeding 10% of total inventory.
“The magnitude of product under construction nationwide underscores the insatiable demand for industrial real estate,” said Transwestern research director Matt Dolly. “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 was delivered for the first time since the first quarter of 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%); 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, the sixth consecutive decrease. Five markets reported direct vacancy at or below 2%, including the Inland Empire, Savannah, Los Angeles, Orange County and Las Vegas. Other supply-constrained markets with less than 3% 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.