Unprecedented demand drives long awaited new construction
After years of steady vacancy rate decreases, accelerating lease rate growth, and burgeoning consensus that more space is desperately needed, new construction of industrial real estate is finally a reality.
As of this writing, four speculative bulk distribution facilities totaling more than 500,000 square feet of space are at various stages of design, permitting, and construction, each of which have projected completion dates in 2022. Furthermore, an additional 665,000 square feet of space is proposed, though timelines for its completion are yet to be clarified.
This new space will provide welcome relief to but one slice (bulk warehousing and distribution) of a market with much broader needs as tenants with requirements in the 1,000 – 20,000 square foot range continue to rely on securing existing, often outdated space. Significant opportunities remain for developers to deliver new options for this dynamic market segment.
The vacancy rate hit a new low of 1.22% in mid-July but slight increases in August and September resulted in a quarterly average of 1.39%. Median lease rates on a modified gross ($10.12/SF) and triple-net ($8.57/SF) basis are up 5% and 7% respectively from the previous quarter contributing significantly to each rate’s year over year growth at 10.2% and 9.6%, respectively. These rates are commensurate with revenue projections that are required to justify new construction and will hopefully stimulate interest among developers to meet the smaller scale needs referenced above.
As COVID-19’s stubborn presence continues to disrupt office and retail properties via continued mitigation efforts, industrial real estate surges forward unabated.
The Land and Industrial Q3 market research and data is compiled by NAI SunVista commercial real estate land and industrial specialist, Riley McKee. Riley advises industrial and logistics real estate owners and occupiers on leasing, acquisitions, and dispositions.