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U.S. Industrial Market Rides Wave of E-Commerce

The U.S. industrial market remains a darling among the major commercial real estate asset classes. A report by CommercialEdge showed that the performance of the sector and its rise in prominence in 2021 was largely driven by e-commerce. Researchers say despite a deceleration of e-commerce growth in Q3 2021, online sales are expected to continue fueling industrial demand into the future.

The key takeaways from the latest monthly national industrial report from CommercialEdge included:

  • National industrial rents averaged $6.37-per-square-foot in November, a 3.8% increase year-over-year.
  • Industrial vacancy rate was 5.7% and ranged from 1% to 11.6% across markets.
  • The average sale price of industrial assets climbed throughout 2021, now sitting at $111-per-square-foot, an increase of 27.4% over 2020.
  • CommercialEdge recorded $62 billion in industrial sales so far this year.
  • November closed with 294 million square feet of industrial supply delivered nationally.
  • Year-to-date total of new supply in development nationwide eclipsed 555 million square feet.

E-Commerce Activity Spikes

The U.S. experienced a massive spike in e-commerce activity during the second quarter of 2020, as the COVID-19 pandemic hit. But e-commerce sales have fallen three of the last five quarters. E-commerce accounted for 19.4% of core retail sales during the surge’s peak, though has declined to 16% in Q3 2021. Meanwhile, retailers such as Target and Walmart noted in their third quarter earnings that online sales growth has slowed while increases are being experienced in in-person or pick-up orders.

Still, e-commerce sales are still tracking ahead of where they would be on the pre-pandemic trend line. That points to a structural shift in the market, as well as the emergence of an omnichannel approach in the future of retail.? 

Fastest Rent Growth Among Top U.S. Markets Reported in Southern California

November rents for industrial space averaged?$6.37-per-square-foot, an increase of 3.8% year-over-year, across the top 30 U.S. markets, reported CommercialEdge. A pair of markets in Southern California and one in the Bay Area were among the top five markets by rent growth, as the shift from services to goods continues fueling demand in port and port-adjacent areas.? 

The Inland Empire, at $6.49-per-square-foot, and Los Angeles, at $10.23-per-square-foot, experienced the fastest rent growth in the nation. Rents for industrial space rose by 6.2% in both markets over the past 12 months. Additionally, rents for industrial space in the Bay Area rose by 5.3%, averaging $10.93 in November.

CommercialEdge also found that the ports of Los Angeles and Long Beach continue to adjust to increased demand. Tight vacancy rates, scarcity of developable land or a combination of both are pushing rents upwards in California, as well as Nashville, at $5-per-square-foot an increase of 5.6%, and New Jersey, at $7.98-per-square-foot an increase of 5.4%, which round out the top five.? 

Record-Breaking Sales Streak Continues

Transactions closed through the first 11 months of 2021 totaled $61.6 billion across the markets CommercialEdge analyzed, which was an all-time high for sales volume. In addition, sales prices averaged $111-per-square-foot in November, up 27.4% year-over-year.? 

Phoenix, despite being the 15th largest market in the country by total inventory, recorded the third-highest sales volume at $3.6 billion in industrial space transactions through the end of November. Los Angeles and Chicago were the only industrial markets to surpass that booming industrial hub. Transactions for industrial space in Los Angeles amounted to $6 billion during the first 11 months of the year, while Chicago’s sales volume exceeded $4 billion in November 2021.?

Port markets in Southern California also led the rankings in terms of sale prices. For example, industrial space in Los Angeles traded for an average of $301-per-square-foot in November, while Orange County industrial space sold for $292-per-square-foot, on average. Average sale prices in the Bay Area?rested at $229-per-square-foot.  

Industrial Space Deliveries Soar

By the end of November, there was 293.9 million square feet of industrial supply delivered nationally. An additional 555.4 million square feet of industrial space was under construction, accounting for 3.4% of the total stock on a national level, according to researchers at CommercialEdge.? 

A market that stood out in terms of development activity was Phoenix. The pipeline in the Valley of the Sun remains the most robust out of the top U.S. markets, as projects under construction or in the planning stages accounted for a hefty 29.1% of the market’s existing industrial stock. Indianapolis was No. 2 with 13% of the industrial space in the market comprised of under-construction or planned developments. Meanwhile, underway and planned industrial stock in Charlotte totals 10.9%, in a market that experienced nearly 10 million square feet of deliveries in 2021, ranking third.

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