- Industrial vacancies fell at year-end to 5.4%.
- Q4 marked the single-highest quarter of occupancy gains, with 96.7 million SF of positive absorption. Bulk space remains highly sought after.
- The Southern and Southwestern U.S. have been market leaders thanks to their logistics advantages and swelling population.
- Amazon signed 173 additional transactions in 2020, to occupy 87.9 million SF.
- Construction remains active with nearly 340 million SF underway, 10% of it in Dallas-Fort Worth alone.
- While investment sales volume was down, pricing continued to increase, averaging $101.40/SF.
The U.S. industrial market expansion broke records in 2020, despite the headwinds of the broader economic slump and other pandemic challenges. The rapid growth of e-commerce established the industrial sector as the new darling of commercial real estate, and occupancy gains, new supply, and low vacancy continued on a positive trajectory. However, year-over-year U.S. industrial investment sales volume dropped nearly 16% from this time last year while prices rose 5.2%. Industrial price growth outpaced that of all other commercial sectors in 2020.
Despite a record number of construction deliveries, the U.S. industrial vacancy rate fell for the first time since mid-2020 to 5.4% at year-end, and stayed above 5% overall for the sixth consecutive quarter. The U.S. industrial market remains relatively tight and demand persists, largely for bulk space. Occupancy gains of 273.1 million SF are 19% higher than a year ago. Fourth quarter net absorption of 96.7 million SF, up nearly 50% over that in the third quarter, made it a record quarter for occupancy gains. The last time absorption nearly reached 100 million SF in a single quarter was in the third quarter of 2016, which recorded almost 96 million SF.
New industrial supply posted record deliveries in 2020 of 348.7 million SF — up 22.4% over 2019’s — the first time more than 300 million SF of new supply was added in a single year. And development remains active — almost 340 million SF is underway, 3.4% more than at the end of 2019. Industrial markets in Texas are in high demand, as evidenced by the 30.4 million SF delivered in Houston and the 32.1 million SF underway in Dallas-Fort Worth. The strength of Southern and Southwestern markets, in Sunbelt states particularly, is evidence of increased demand for industrial space with proximity to our southern border.
U.S. Industrial Outlook
Amazon arguably dominated real estate headlines throughout 2020, taking more space than ever before. The mass appeal of quick-delivery options and vast selection of merchandise directly correlates with the development boom for fulfillment centers, while other sectors of the retail commercial real estate industry suffered store closures, plummeting demand, and rising vacancy. To support this shift in consumer preferences, Amazon signed 173 transactions to occupy a whopping 87.9 million SF in 2020 — totaling more space in 2020 than it occupied between 2016 to 2019.
E-commerce adoption and growth will continue to be a trend to watch in 2021. Amazon’s growth has encouraged large retailers and other online sellers to pursue aggressive expansion intentions, and more companies should enter the online marketplace and, in turn, continue to tweak their supply chains. One potential headwind is the amount of developable land available. Land for industrial projects is scarce in some markets and comes at a premium. Expect the number of multistory projects to increase in the years to come — and the industrial sector to keep outperforming other real estate sectors.
About the Authors:
As Research Director | U.S. Capital Markets, Aaron Jodka is responsible for all aspects of research within the Capital Markets platform. He synthesizes and interprets a variety of data and information to stay ahead of trends that put our clients in an optimal position to make informed decisions. At the same time, he promotes the Colliers brand via best-in-class research reports, weekly insight posts, thought leadership, and contributions to numerous panels, media outlets, and industry events. With a deep understanding of markets throughout the country, he provides a unique perspective on market dynamics across asset types and investment strategies, providing clients with tailored data and analytics to ultimately guide decision-making solutions.
Amanda Ortiz is the Director, National Industrial Research on the National Marketing & Research team at Colliers. Based in Chicago, Amanda partners with national and local teams to deliver market intelligence initiatives and provide direction to drive national competitive advantage through research strategy, development and analytics.