Industrial Market: The Streak Continues for longest growth period

 

The U.S. industrial market racked up impressive first-quarter absorption while setting new records for vacancy and rent growth. Here are the details:

 

  • Net absorption totaled 51.7 million square feet in the first quarter, its 10th consecutive quarter above the 50 million threshold, though it fell short of the quarterly average of 64.9 million square feet in 2016.

 

  • Eighteen of the 50 markets tracked by NGKF absorbed 1 million square feet or more, led by Atlanta, the Inland Empire, Dallas, Chicago and Cincinnati—all major hubs for e-commerce and distribution.

 

  • Distribution-oriented occupiers engaged in the retail, wholesale and e-commerce sectors captured two-thirds of leases signed in the first quarter as measured by square footage. Manufacturers accounted for 28% of the deals.

 

  • Developers added 44.6 million square feet of new space during the quarter, trailing absorption. Space under construction ended the quarter at 212.0 million square feet, near record highs. Fifty-two mega- projects with at least 1 million square feet were under construction at the end of the quarter, 10 more than at year-end 2016.

 

  • Vacancy dropped by 30 basis points to end the quarter at 5.4%, its lowest level since at least 1986. Los Angeles and Orange County were the tightest markets at 0.9% and 2.0%, respectively. Only one market cracked double digits: Phoenix at 10.0%.

 

  • The average asking rent across the U.S. ended the quarter at $6.12/SF triple net, up 1.9% from the fourth quarter and up 7.1% from a year ago—the strongest year-over-year gain in the current cycle. Twelve markets posted double-digit increases over the past year, led by Raleigh-Durham at 16.1%.

 

What to Expect

 

Unlike other property types, industrial is in the prime of its cycle, with absorption having accelerated every year since 2009. Construction and absorption are both at record highs, but the latter is still winning the battle, at least for the time being. E-commerce, the economic driver that is supercharging demand for space, continues to grow at a double-digit pace every year, pressuring retailers to invest in their online strategies and supply chains to avoid being “Amazoned.” Global trade has been another important demand driver. Trade volumes have been weak in recent years, restrained by slowing growth in China and widespread economic softness outside the U.S.

 

But the global economy is firming, and the Trump administration appears to be backing away from its campaign rhetoric advocating tariffs and trade restrictions, prompting importers and exporters to sigh in relief.

 

The economy is in its eighth year of expansion—94 months in April, to be exact—making this the third-longest of the 12 post-World War II expansions, and it shows no signs of slowing. If the economy continues to grow, it will become the second-longest post-war expansion by this time next year and the longest ever in the summer of 2019. That is not out of the realm of possibility, and the industrial market could go along for the ride.

 

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BKM CAPITAL PARTNERS

 

Headquartered in Newport Beach, California, BKM Capital Partners is a real estate fund manager specializing in the acquisition and improvement of value-add multi-tenant industrial properties in metro areas across the Western U.S. Combining a deep knowledge of this niche industrial product type with in-house capabilities including on-site property management, asset management, and leasing to reposition and institutionalize light industrial assets, the firm continues to build on its proven track record, generating strong results with high levels of transparency and engagement for investors. 

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BKM MANAGEMENT COMPANY

 

BKM Management Company manages a portfolio of 8.2 million square feet of multi-tenant industrial properties for BKM Capital Partner’s private and institutional investors. With a focus on “boots on the ground” execution at the property level, BKM has in-house capabilities for both property management and leasing. The teams at the property level are focused on ensuring the tenants thrive and that the properties managed in the most efficient way.

 

 

 

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