Warehouses and fulfillment centers across North America will continue to see “intense pressure” for space through the end of 2023, leading to record low vacancy rates and soaring rents, according to a forecast from the real estate services firm Cushman & Wakefield.
In the short term, the North American industrial market is expected to reach over 507 million square feet of net absorption by year-end 2021—the first time the market has surpassed 500 million square feet—despite an anticipated near-record level of new supply, at 376 million square feet, the firm said in its “North American Industrial Forecast for 2022/23.”
Those trends will combine to fill nearly all available warehouse space in the region, with vacancy rates sinking to a scarce 3.8% at year-end 2021—a decrease over 2020 year-end levels of 4.9%. And with space in high demand, rents will rise, expected to finish the year at 8.5% above 2020 levels, setting another record high asking rental rate for industrial space, the firm said.
In the face of that demand, developers are hurrying to provide new facilities, supporting a hot market for net absorption, a real estate term that includes the sum of square feet that become physically occupied, minus the sum of square feet that became physically vacant. For the ninth consecutive year, net absorption in the U.S. will exceed 200 million square feet in 2022 and Cushman & Wakefield projects this streak will hit a 10th year, extending through 2023 and beyond.
“The economic recovery and the accelerated buildout of e-commerce and 3PL last-mile facilities, fulfillment centers, and bulk warehouses will reinforce demand for industrial real estate. Although the Covid-19 pandemic brought on new challenges for the industrial market, with port congestion, materials shortages, and commodity pricing skyrocketing, the market has and will continue to excel,” Carolyn Salzer, Americas Head of Logistics & Industrial Research for Cushman & Wakefield, said in a release.
Specifically, the supply of new warehouse and industrial space is expected to finally outpace demand by 2023, but to remain slightly behind in 2022, the report said. Most of those new additions will be seen in primary industrial markets, port-proximate markets (both intermodal and maritime), and in markets with dense or fast-growing populations where demand has been strongest, the firm said.
Those conclusions echoed a recent assessment by fellow real estate investment firm JLL, which found that accelerating e-commerce activity and a growing need for last-mile delivery services are pushing companies to seek small to midsize warehousing and distribution facilities near urban markets.
Another factor forcing change in the industrial real estate sector is a move by renters to pivot towards a more resilient supply chain strategy, after the pandemic and associated material and labor shortages exposed serious vulnerabilities in the just-in-time approach to inventory management, according to the London-based real estate services provider Savills.
In a study released today, the company said that shift would create even more competition for warehouse space as tenants look to new market locations and seek to add automation to their facilities, Savills said in a blog post, “Resilient Supply Chains Will Shape the Next Era of Industrial Real Estate.”
