In 2016, the U.S. industrial market completed its second consecutive year of record-breaking activity with every key indicator reaching all-time highs. Colliers’ Q4 2016 U.S. Industrial Market Outlook Report examines the way e-commerce has made industrial the darling of commercial real estate, creating robust demand for big-box buildings in core industrial markets, last-mile distribution centers in secondary markets and industrial flex space in urban areas.

As we look at the market performance at the end of 2016 and turn to expectations for 2017, these driving factors continue to support robust fundamentals in core industrial markets. These key drivers will also expand demand in secondary markets near inland ports and large population centers and lead to a resurgence in demand for both manufacturing space and flex space in markets throughout the country.

KEY TAKEAWAYS FROM THE REPORT

• E-commerce sales grew 14% in Q4 2016 compared with Q4 2015, and now represent 8.4% of total retail sales. E-commerce will continue to be a driving force for industrial real estate in 2017.

• At year-end 2016, only 5.6% of the nation’s industrial space was vacant — the lowest rate on record despite 246 million square feet of new supply completing in 2016. Product under construction also increased by a whopping 38 million square feet in 2016 to reach 230 million square feet — the most annual product under construction ever.

• Manufacturing space — and warehouse space that can handle a manufacturing component — is a product type to watch in the coming year. In January 2017, the ISM Manufacturing Index rose to its highest level in two years as production and new orders surged. With “reshoring” on the rise due to consumer habits and anticipated government policies, industrial real estate with a manufacturing component will likely see increased demand in the coming year.

• Flex space will continue to be a star for both investors and occupiers in 2017, especially in urban markets with younger populations. The push to service this population base will likely lead to a pickup in modern flex space construction as well as conversions of older industrial product within in-fill locations.

• Tightening markets and new, higher-quality class A space drove up asking rents to $5.81 per square foot per year in Q4 2016, an all-time record for the country (not adjusted for inflation). 2017 is anticipated to be another year of record development, which will likely slow the rate of growth in asking rents.

• More than $59 billion in industrial assets changed hands in 2016, among the highest annual totals ever. However, transaction levels were down from 2015 due to a significant pullback in large portfolio sales. We anticipate a pickup in large portfolio transactions in 2017 with Global Logistics Properties, the second-largest industrial owner in the nation, currently shopping its U.S. portfolio.

All in all, 2016 set the bar high for industrial market performance. But 2017 may prove to be another landmark in the record-setting pace that industrial has established in recent years.

For more details on the latest trends in the industrial market, download the Q4 2016 U.S. Industrial Market Outlook Report. In addition to reading the report, be sure to explore Colliers’ new U.S. Industrial Market Dashboard for a detailed, interactive view of the latest data and forecasts.