Industrial construction not keeping pace with demand

Dive Brief:

  • Speculative construction in the industrial sector is up, driven by healthy capitalization rates and a low national vacancy rate of 6.1%, the National Real Estate Investor reported.
  • Real estate firms Cushman Wakefield, Colliers International and CBRE said industrial rents, which are at an average of $5.44 per square foot nationally, will continue to rise in 2016 and that space availability is at 9.2%, a 15-year low.
  • Of the 175.8 million square feet under construction now, 62.5% is speculative, the NREI reported, but CBRE's David Egan said that since 2010, construction has not met the demand.

Dive Insight:

Aside from new construction, investors are also buying industrial buildings, but, Fitch head of U.S. REIT research Steven Marks said that REIT managers believe it's a better deal to build right now because of the attractive acquisition cap rates, the NREI reported.

Egan said foreign investment in industrial real estate is also up and is expected to increase in 2016. Cushman Wakefield's John Morris said that on a total-investment basis, foreign investment in the industrial market rose from 10% in 2014 to 35% in 2015. The US industrial market is such a pay off, said Trimont Real Estate Advisors CEO Brian Ward, that there is an increase in the number of foreign e-commerce companies building fulfillment centers in the U.S.

Earlier this month, CMD reported that March nonresidential construction starts surged 18% from February to $28.5 billion, and the construction data company said industrial was up 5.2%. However, in February, commercial real estate services firm JLL called industrial "the shining star" of nonresidential construction, and reported the sector had seen quarter-over-quarter gains of 23% in the fourth quarter of 2015 and delivered 178.4 million square feet last year. 

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Filed Under: Commercial Building Economy
Top image credit: Walmart Corporation