Washington, D.C.(Oct. 13, 2021)—The pandemic has fueled a robust growth in e-commerce that has led to a high demand for industrial warehouse and distribution space. That race for space has pushed investment sales activity to record levels, according to a newly released LightBox-SIOR Industrial Investor Sentiment Report. The report also demonstrates that increased sales have also driven up rental rates and purchase prices, and 2021 investment sales activity is expected to exceed the record $120 billion set in 2019.
The report incorporates views from leading commercial real estate investors, brokers, and development professionals across the U.S. The report’s release coincides with the Oct. 14 opening of the global CREate 360 conference in Nashville, the first in-person global event by The Society of Industrial and Office Realtors®(SIOR) since the fall of 2019.
According to the report, investors remain bullish on the 2022 outlook for the industrial sector, with 71.7% of survey respondents expecting investment levels to increase, and 24.3% predicting levels will remain the same. Only 4% of respondents expect a decrease.
“As e-commerce continues to transform our economy, investors are looking for every opportunity to gain entry or expand their positions in the industrial sector,” says Tina Lichens, Senior Vice President, Broker Operations, RCM LightBox. “The industrial sector is attracting significant amounts of domestic and foreign capital and is well-positioned to withstand supply chain disruption or other volatility that might occur.”
Key findings of the 2021 LightBox-SIOR Investment Sentiment Report include:
- E-commerce will continue to drive industrial space usage for the foreseeable future. E-commerce sales grew by 40% over the past year and are expected to reach $1.1 billion by 2025.
- Rents are expected to rise by 5% to 7% or more in 2022. Approximately 60% of survey respondents predicted rental rate increases of more than 5%, for example. Occupier demand, led by retailers and logistics providers, will push rents higher; rates could reach double digits in many markets. Asset pricing could increase the same or more. Among the top markets for year-over-year rent growth in 2021 are Northern New Jersey (33.3%), Inland Empire (28.3%), Philadelphia (25.9%) and Nashville (20.3%).
- Large portfolios, particularly those tied to logistics, are in great demand as they allow investors to scale up quickly in this coveted sector. In Q3 2021, for example, Blackstone acquired Toronto-based WPT Industrial REIT in a $3.1 billion deal involving 110 properties in 19 states.
- Industrial construction continues at a strong pace, with 151.5 msf completed in the first half of 2021. The development pipeline is 410 msf, with 60% of it preleased. Among the top markets for construction are: Dallas Fort-Worth, Atlanta, and Chicago.
- Supply chain disruption, rising construction costs and material and labor shortages are key headwinds for the sector. Over the past year, the industry has experienced an unprecedented level of port congestion, supply and labor shortages, and increases in the cost of steel, lumber and plywood and other materials. Material prices have increased from 5% to 60% or more, as shortages of warehouse workers and truck drivers have impacted the flow of good. Given the robust level of industrial demand, however, those headwinds are not expected to dampen investor enthusiasm for this sector.
While the strong industrial activity is generating many bullish predictions from industry experts, it is also creating a frenzied search for space among many tenants. Demand for space is driving vacancy rates to super low levels. In Los Angeles and the Inland Empire, for example, vacancy is around 1%, creating a significant supply-demand imbalance. “If you are looking to lease or purchase industrial real estate in any major market, welcome to the extensive waiting list of other businesses all seeking similar solutions for their space needs,” said Robert G. Thornburgh, SIOR, CCIM, FRICS and the CEO of SIOR. “Supply and demand imbalances are the most significant we have ever seen for industrial space.”
“The economy and the real estate industry historically have run in decade- long cycles, but today’s industrial sector is rewriting those norms,” says Steve Shanahan, General Manager, Broker Solutions, LightBox. “We’ve crossed the threshold and continue to see the strong benchmarks that will extend the growth trajectory for many years to come.”
View the full report and past reports here.
LightBox is a leading provider of CRE data and workflow solutions for marketing, prospecting, due diligence, risk management, and location intelligence that enable decision making for 50,000 CRE brokers, 1,100 banks and lenders, 2,000 appraisal firms, and 5,000 environmental consulting and engineering firms. By combining proven brands with innovative technology and data capabilities, the company is creating new solutions to facilitate transparency, efficiency and insight for real estate. LightBox was established in 2018 and backed by Silver Lake and Battery Ventures. Learn more at www.lightboxre.com.
The Society of Industrial and Office Realtors ® (SIOR) is the leading global professional office and industrial real estate association. With more than 3,460 members in 42 countries, SIOR represents today's most knowledgeable, experienced, and successful commercial real estate brokerage specialists. Only the industry’s top professionals qualify for the SIOR designation. www.sior.com