The U.S. industrial sector’s momentum carried over into 2021, setting a new absorption record of 109.6 million square feet in Q1, 83% higher than one year ago. E-commerce growth continues to be a driving factor, accounting for 14% of all retail sales in 2020, a 3.4-percentage-point increase over 2019. This is just the beginning. In fact, the number of global e-commerce users is expected to increase by 400 million this year. According to a recent report by Adobe’s e-commerce division, the COVID-19 pandemic boosted U.S. online shopping by $183 billion since March 2020. Domestic e-commerce is expected to reach $1 trillion by 2022. This means that occupiers, like Amazon, will need more space to meet the demand of consumers shopping from home.

In 26 markets, occupancy grew more than one million square feet during the first quarter, including Atlanta, Dallas, Inland Empire, Chicago, and Phoenix. On the other hand, just five industrial markets posted negative absorption — Milwaukee, Huntsville, and Norfolk among them. Those with the highest absorption as a percentage of inventory include emerging markets such as Salt Lake City, Stockton, Columbus, and Savannah.

E-commerce is just part of the story. Manufacturing production is still growing faster than expected, with output growth for the 10th consecutive month. The Institute for Supply Chain Management’s Production Manufacturing Index (PMI) registered 64.7 in March, up 3.9 percentage points from February’s reading of 60.8. Anything above 50 indicates growth. Wide-scale shortages of critical basic materials and their overall rising costs could slow production growth soon. Yet the manufacturing sector is not expected to contract — persistent demand will keep production pipelines full and manufacturing industries operating at maximum capacity for the duration of the year.

First quarter new supply fell 16% year-over-year, but industrial deliveries are expected to pick up by year-end with a full pipeline. A total of 73.2 million square feet was built during the first three months of the year, which is poised to be another record year for the market. Of the 12 buildings larger than one million square feet built during the first quarter, just one was vacant at the end of the quarter — a 1.3-million-square-foot facility in South Carolina. Almost 356 million square feet is under development, 8% more than at the beginning of 2020 and 4% higher than the previous quarter. The Dallas-Fort Worth industrial market continues to execute the most construction, with 7.6 million square feet delivered and 28.9 million square feet under construction.

Overall, strong economic readings point to sustained growth in industrial real estate. Gains in e-commerce and brick-and-mortar sales should fuel the sector in the months to come and translate demand for industrial space into new leasing and ongoing robust construction. Low vacancy in many industrial markets will guarantee growth in new builds to meet occupiers’ industrial space needs.