January saw industrial rents at an average of $6.44 per square foot, up 5.1% from the same month in 2020, Yardi Matrix reported.
That dollar amount is actually down from 2020’s full-year figure, with tenants signing new leases last year at an average of $7.50 per square foot. The growth of e-commerce drove demand for warehouse and logistics space last year to banner heights, and Yardi expects demand to stay strong, giving rents an opportunity to equal and even surpass last year’s levels.
Yardi expects demand to remain hot even if e-commerce sees an unlikely slowdown. Other sectors are in line to pick up the potential slack; port markets, for instance, are due for a rebound as the global economy gets back on track.
Trade numbers have recently rebounded, with import volume up 4.8% year over year in December. Exports remain down, with volumes in December 3.0% below the same month in 2019. That figure, however, represents steady progress, considering export volumes were down more than 33% annually in the second quarter. Additionally, continued economic recovery should spur retailers to replenish their inventories, further pushing imports and fueling need for space in distribution facilities.
All of this demand should sustain rent growth and drive vacancy rates lower throughout 2021, Yardi said. The company forecasts elevated absorption despite a projected 261.6 million square feet of new supply set to be delivered nationwide this year. Increasing demand is also anticipated to charge gains in both sales volume and price, following a 2020 Q4 that saw the most transaction dollars — $11.9 billion in sales completed, at an average price of $100 per square foot — on record. The market is already seeing some of that forecast appreciation realized, with January’s average price ticking up further to $145 per square foot.
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Demand for industrial space, however, hasn’t been uniform. Thanks to the aforementioned improvement in trade, markets with or near ports saw bounces in activity and, subsequently, rent. This is reflected in notable industrial rent gains in California’s Inland Empire (with January rents up 8.1% annually), South Carolina (7.7%) and Los Angeles (7.2%), which all handily eclipsed the national year-over-year rent increase of 5.1% in January. But Midwestern cities that aren’t shipping or logistics hubs have yet to see a meaningful rent growth spike. For example, Minneapolis, St. Louis and Kansas City, Missouri, all posted industrial rent growth under 3.0% over the last year.
The amount of new supply coming in is also greatly divergent. So far this year, 27.8 million square feet of new industrial space have been delivered, with another 337.8 million square feet under construction and yet another 361.3 million square feet in the planning stages. Much of that new supply pipeline is set to be delivered into Midwestern shipping hubs: Memphis has 12.2 million square feet under construction, while Indianapolis has 10.3 million square feet under construction and an additional 9.4 million square feet in the planning stages. The two centrally located cities are the largest FedEx air shipping hubs in the world and offer land that’s both available and affordable, making them ideal markets for logistics and distribution companies to establish a footprint.
Consequential new supply, however, has yet to emerge in coastal markets with high land costs like Boston, Orange County, and Los Angeles. Los Angeles, notably, does have 11.7 million square feet currently under construction, but that figure represents only 1.7% of stock in the city. Compare that to Memphis, where under-construction square footage represents 5.1% of metro-wide stock. Watch those coastal markets as trade continues to bounce back — burgeoning demand growth could lead to fewer vacancies, increased rents and elevated sale prices for properties already in place.
