The COVID-19 pandemic dominated headlines in 2020 and some real estate sectors struggled to recover from the initial fallout that impacted demand, employment, and the economy. The U.S. industrial sector, on the other hand, had a record year in 2020. Overall net absorption remained resilient with occupancy gains of more than 273 million square feet at year-end, 18.9% higher than the same period a year ago. Fourth quarter absorption of almost 97 million square feet is the highest quarterly absorption recorded ever. The only other time quarterly absorption came close was the third quarter of 2016, where net absorption totaled 95.6 million square feet. E-commerce growth continues to be a driving factor for industrial demand and is expected to reach 17% of all retail sales, which would be up from the 13.5% in the third quarter. The accelerated growth of e-commerce, fueled by the pandemic, propelled this growth trend by a few years. Still, it is expected to level – and maybe even decelerate – in 2021 as traditional brick-and-mortar sales could start to rebound from their pandemic plunge.
Year-end new supply hit a record high in 2020, surpassing the prior year by 22.4%. A total of nearly 349 million square feet was built over the last year, the first time that more than 300 million square feet of new supply was added in a single year. Almost 340 million square feet remains under development, 3.4% more than what was under construction at the end of 2019. Industrial markets in Texas are in high demand, as evidenced by the 30.4 million square feet delivered in Houston and the 32.1 million square feet under construction in Dallas-Fort Worth. The strength of southern markets in Sunbelt States, particularly, is evidence of increased demand for industrial space with proximity to our southern border.
There were 11 markets that posted occupancy gains greater than 10 million square feet in 2020, including the Inland Empire, Atlanta, Dallas, Houston, Chicago, and Columbus. The markets experiencing the most activity growth (absorption as percent of inventory) include emerging markets such as Savannah, Charleston, Memphis, Phoenix, and Columbus. Demand for logistics and distribution space supports the strong growth seen in these cities. Savannah posted more than 4 million square feet of positive absorption in a market with less than 90 million square feet of inventory. Occupancy gains in Savannah were largely anchored by the Savannah Port Logistics Center – a 1.1 million square foot facility built in 2020 and occupied by Plastic Express. Another million-square-foot preleased facility in the Savannah market – leased to A&R Logistics and BISSELL – also added to those substantial gains in Savannah.
E-commerce adoption and growth will continue to be a trend to watch in 2021. Amazon has commanded the attention of large retailers and other online sellers to pursue aggressive expansion intentions, and we should see more companies enter the online marketplace and, in turn, continuing to tweak their supply chains. One potential headwind to consider is the amount of developable land available. Land for industrial projects is scarce in some markets, and it comes at a premium. Expect the number of multistory projects to increase in the years to come and the industrial sector to continue to outperform other real estate sectors.