The rush for industrial space in 2020 will likely continue through 2021. And demand for more industrial space — fueled by rebounding global trade and economic recovery — will be augmented by federal economic incentives. Plus, the Fed projects a 6% growth in the gross domestic product (GDP) this year after the passage of the $1.9 trillion economic stimulus bill that promises to boost the economy.

All of these factors have contributed to the increases of rental prices, sales activity, and new construction in the industrial asset class. But, the rise of e-commerce, in particular, continues to fuel demand for industrial space. And, as the pandemic drove consumer shopping to the online medium, the increasing need for warehouses and storage facilities contributed significantly to increasing sale prices. In fact, sales grew 32% over the previous year.

Industrial Sale Prices Up 10% Since Q4 2020; Insufficient Space Raises Port Market Prices

Specifically, our report recorded $4.7 billion in sales nationwide during the first two months of 2021. And, by February, the average price per square foot had risen 10% from Q4 2020 to $112 per square foot.

In coastal markets, high demand and insufficient space for new developments spurred price growth, and New Jersey’s steep average of $292 per square foot is just one example of high prices in port markets. Without discounting the market’s unique asset mix, this impressive sales volume was largely due to two high-profile cases: Amazon leased a 900,000-square-foot building that recently sold for $247 million, and a FedEx Freight building sold for $120 million.

Likewise, price growth in the face of inadequate space was a pre-pandemic trend that continued through 2020. For instance, across California’s three port markets, the average price per square foot increased by more than 40% between 2016 and 2020. During that time, prices in Orange County grew from an average of $158 per square foot to $226; Los Angeles saw an increase from $138 to $197; and Inland Empire prices rose from $80 to $127 per square foot. On the other side of the country, the East Coast saw sale prices in New Jersey grow by 75.4%, in addition to an astronomical 154.5% in Boston.  

Rents in Coastal Markets Surge 7%+ & Vacancies Shrink in Face of Demand

Over the last 12 months, demand pushed up industrial rent prices by 5.1% — resting at a national average of $6.47 per square foot in February — and tenants continue to pay premium prices, with leases signed in the last 12 months averaging $7.42 per square foot.

However, port markets witnessed the sharpest growth in industrial rents in the last 12 months. Specifically, rents rose 9.2% in the Inland Empire, 8.1% in South Carolina and 7.8% in Los Angeles. Port markets also had the widest spreads between average rental rates and rates for leases signed during the last 12 months. For example, New Jersey, Seattle, Los Angeles and the Inland Empire saw lease spreads of between $1.51 and $2.62 per square foot.

By contrast, markets in the Midwest saw the lowest rent increases: St. Louis rents grew by a nationwide year-over-year (Y-o-Y) low of 0.3%, followed by Kansas City at 1.7%, Houston at 1.8% and the Twin Cities at 2.4%. Even investor favorites Denver and Dallas experienced only modest year-over-year premiums of $0.59 and $0.62, respectively, while Phoenix saw a decrease of $0.28. At the same time, Chicago saw a more notable spread, as new leases here increased by $1.09 Y-o-Y per square foot.

Meanwhile, as of February, the national vacancy rate was 6.1%. However, in coastal markets — where demand for industrial space is high and space for new development is scarce — vacancy rates were far lower. Notably, the Inland Empire, Orange County, New Jersey, and Los Angeles saw vacancy rates of 2.5%, 3.6%, 3.9% and 4.4%, respectively.

Phoenix, Dallas & Denver Claim 17% of All New Development Underway; Construction Expected to Boom in Inland Markets

While rental and sale prices in inland markets paled in comparison to coastal markets, construction boomed in inland markets, where land is more amply available. More precisely, Phoenix, Dallas and Denver together accounted for 17% (55 million square feet) of all new development in the U.S. What’s more, there are 59.7 million square feet of new projects in the planning stages across these same markets. The inland appeal to developers is their ideal location for logistic and shipping hubs.

In 2021, the first two months of the year saw the delivery of 41.7 million square feet of new stock, and there’s another 346.6 million square feet under construction and 394.4 million in the planning stages. In fact, an estimated 261.6 million square feet of new stock will be delivered this year, and construction is projected to expand in the first half of this decade. Then, the delivery of approximately 250 million to 300 million square feet of new stock is projected through 2025.

Due to the availability of space, much of this new stock is anticipated to be in inland markets. As of February 2021, Phoenix, Denver, and Dallas had 15 million, 12.7 million and 27.2 million square feet under construction, respectively. In contrast, space-constrained coastal markets have smaller pipelines. As of February, Orange County, Los Angeles, and New Jersey had 609,331 square feet, 5.7 million, and 8 million, respectively, under construction.

Methodology

This national report looked at one year’s worth of data on the top 20 U.S. industrial markets with a focus on average rents; vacancies (including subleases but excluding owner-occupied properties); deals closed; pipeline yield; and forecasts, as well as the economic indicators most relevant to the performance of the industrial sector. Sales volume and price-per-square-foot calculations may not include portfolio transactions or those with unpublished dollar values.

Use the prompt below to download the full report for a comprehensive analysis of how the U.S. industrial markets fared by the third month of 2021, as well as insights on the recovery path ahead.

The post CommercialEdge National Industrial Report March 2021 appeared first on CommercialEdge.

The office industry continues to struggle after the shock of the COVID-19 pandemic changed how office space was used as many firms shifted to remote work. The effects of this shift are still reverberating across the industry and causing increased vacancies, losses in office employment, lagging sales, and a forecasted decline in construction.

To that end, our most recent report found that, in February, the national average full-service equivalent listing rate was down 0.6% year-over-year (Y-o-Y). And, at $38.81 per square foot, listing rates also marked a $0.01 dip last month compared to January. Meanwhile, the national vacancy rate currently stands at 15% — which marks a 160 bps increase Y-o-Y and an uptick of 40 bps month-over-month.

However, the effect of the pandemic on rising vacancies was most evident in central business district (CBD) submarkets, where typically high density is incompatible with social distancing requirements. As such, office space in urban cores saw the greatest increase in vacancies — up 250 bps Y-o-Y.

Office Vacancies Highest in Austin, San Francisco & Seattle

Specifically, Austin, San Francisco and Seattle took the brunt in terms of loss of occupancy. Office vacancy rates in these areas increased by 720 bps, 480 bps and 450 bps, respectively. Pre-COVID, these markets had single-digit vacancy rates due to high demand. But the transition to remote work in these tech hubs quickly emptied offices.

The Austin office market, in particular, suffered the greatest slump in occupancy. Here, vacancies increased from 7.8% in February 2020 to 15.1% in February 2021. This occurred even despite the fact that the city’s office-using employment grew by 6% last year and major employers — including Oracle and Tesla — relocated there.

The city’s oversupply of office space further accelerated vacancy rates. Previously, Austin had one of the most sizable construction pipelines in the nation, delivering 4.6% of the total stock since the beginning of 2020. Plus, many firms are subleasing office space. In fact, sublease vacancy rates grew from 1.5% to 3.6% Y-o-Y.

U.S. Office Employment Falls 3.4%, First Months of 2021 See $6 Billion Less in Sales Y-o-Y

While the Texas capital saw positive office employment growth, the nationwide picture was different. Overall U.S. office-using employment decreased 3.4% Y-o-Y. Similarly, only 151,000 jobs were added in the first two months of 2021, as compared to 209,000 per month between May and December 2020.

Likewise, office sales since the beginning of the year totaled $5.5 billion — marking a sluggish take-off compared to the $11.7 billion reported for the same time period in 2020. However, as vaccines become available to more people in the workforce and businesses begin to consider return-to-office strategies, we expect to see an increase in sales activity throughout the year. Then, perhaps by the fall, the office industry might have a clearer view regarding the future use of workspaces.

75.3 Million Square Feet of New Office Space Scheduled for 2021 Completion

Meanwhile, completion of stock that was already under construction before the pandemic began is now being finished. To that end, our estimates show that 75.3 million square feet of new office space will be delivered by the end of the year. Nonetheless, while this pipeline volume parallels pre-pandemic years, we estimate that the subsequent supply will decrease significantly through 2025. So far this year, developers have delivered 9.2 million square feet nationwide, and this new stock is almost evenly split between urban or CBD areas and suburban areas. Another 163.2 million square feet is currently under construction and 235.5 million more is in the planning stages.

Although new construction will lag in some U.S. markets, developers are expected to remain bullish on a few high interest locations. Markets like Austin, Charlotte, and Nashville — which currently have 10.4%, 11.3% and 6.7% of stock under construction, respectively — will attract sustained long-term confidence.

Methodology

This national report covers office buildings of at least 50,000 square feet. Sales volume and price-per-square-foot calculations do not always include portfolio transactions or those with unpublished dollar values. Listing rates are full-service or “full-service equivalent” rates for spaces available as of the reporting period. Data is as of February 2021.

Use the prompt below to download the full report for a comprehensive analysis of how U.S. office markets fared in the second month of 2021, as well as insights on the recovery path ahead.

The post CommercialEdge National Office Report March 2021 appeared first on CommercialEdge.

During the second half of 2020 and through February of this year, demand for industrial space grew significantly. In particular, the rebound in global trade and economic recovery — in addition to pandemic-induced changes in consumer behavior, which prompted a shift from brick-and-mortar shopping to e-commerce — fueled a need for more warehousing and distribution facilities. Consequently, these factors contributed to increased sales activity and higher rental prices, as well as spurring construction of industrial facilities.

Meanwhile, the bounce back in trade activity during the last half of 2020 saw imports grow 4.8% year-over-year (Y-o-Y) in December. Concurrently, it also elicited the highest sales figures for industrial space in Q4 2020. Industrial sales added up to $11.9 billion during the year’s final quarter — the highest quarterly sales total on recent record. Moreover, sale prices averaged $100 per square foot, marking an 18.2% Y-o-Y increase.

The rush for more storage and logistical space generated hefty premiums on industrial rents. For example, tenants who signed leases in the last 12 months paid an average of $7.50 per square foot. In January 2021, industrial rents were $6.44 per square foot – a 5.1% Y-o-Y increase. Demand also precipitated a surge in construction activity, resulting in 261.6 million square feet of new industrial space expected to be delivered yet this year.

Increased Trade Activity Raises Industrial Rent Prices by More Than 7% in Port Markets

The bounce back of global trade activity during the second half of 2020 was felt the most in large port markets. Specifically, record trade activity in the Port of Los Angeles and the Port of Long Beach accelerated even sharper price growth. For instance, Inland Empire led the way nationally with an 8.1% Y-o-Y increase in rents, followed closely by a 7.2% increase in LA. And, not to be outdone, the Port of Charleston is inching toward record-setting trade activity by the end of the fiscal year in July 2021. At the same time, rent in South Carolina saw a 7.7% Y-o-Y increase for the second-highest rent growth in the country during the past 12 months.

As such, newly signed leases in these markets commanded significant rental premiums of $2.07 more per square foot in Los Angeles, $1.48 more in the Inland Empire and $0.58 more in South Carolina. In comparison to port markets, Midwestern hubs like St. Louis and Kansas City saw significantly less impressive rent increases of less than 2% Y-o-Y. Nevertheless, although rents in non-port industrial markets didn’t see the same growth, demand here is still noteworthy. In fact, cities like New Jersey and Chicago — where industrial space is older, smaller and has fewer modern amenities — recorded some of the largest lease spreads.

27.8 Million Square Feet of New Construction Delivered in 2021; Record Supply Expected in the Years Ahead

Since the start of the year, developers have completed 27.8 million square feet of new industrial space nationwide. Going forward, we estimate that, of the 337.8 million square feet of new industrial space currently under construction, 261.6 million will be delivered over the course of 2021.

And, while coastal markets with more expensive land are looking at demand-driven increases in rents, logistics hubs in the Midwest are also working to meet the rising demand for more space. In particular, Memphis and Indianapolis — the two largest FedEx air shipping hubs in the world — currently have two of the largest new supply pipelines in the country with 12.2 and 10.3 million square feet, respectively, under construction.

Furthermore, following last year’s record-setting pipeline of 228.4 million square feet of new industrial space — the most delivered in a century and 10% more than the previous decade — the U.S. industrial market is looking at even more impressive growth throughout the next few years. Specifically, with 361.3 million square feet still in the planning stages, our estimates anticipate that U.S. industrial supply levels will be historically high through 2025.

Methodology

This national report looked at one year’s worth of data on the top 20 U.S. industrial markets with a focus on average rents, vacancy rates (including subleases but excluding owner-occupied property), deals closed, pipeline yield; and forecasts, as well as the economic indicators most relevant to the performance of the industrial sector.

Use the prompt below to download the full report for a comprehensive analysis of how the U.S. industrial markets fared by the second month of 2021, as well as insights on the recovery path ahead.

The post CommercialEdge National Industrial Report February 2021 appeared first on CommercialEdge.

Despite the significant loss of jobs that was brought on by the pandemic, office-using employment has fared better than the rest of the labor market thus far. For instance, peak to trough, jobs in this sector decreased 8.9%, while the labor market as a whole saw a 14.7% drop. And, compared to pre-COVID levels, office-using employment currently lags just 3.5% nationwide — a good indicator of a relatively speedier recovery than anticipated.

In fact, our most recent report found that, of the 120 markets we surveyed, 22 added office-using jobs in 2020. Then, in January 2021, these jobs decreased only 3.3% year-over-year nationwide. The transition to remote work also aided the resilience of the office-using sector — which raises the question about what teleworking will imply for the demand for office space. And one emerging trend is co-working. With the progression of the pandemic and its implications for the economy still murky, businesses are hesitant to commit to long-term leases — particularly in expensive city centers. So, real-estate service firms have adapted and are operating co-working spaces. For example, CBRE’s Hana already has three locations open in the U.S. and three more in the works yet this quarter.

However, co-working space has not been immune to the effects of the pandemic. For instance, WeWork closed more than 100 locations and has had to renegotiate some leases. Nevertheless, franchising and revenue-sharing agreements may become the new norm by offering lease-weary business owners both profitability and stability.

In the meantime, vacancy rates have increased, and many smaller firms have allowed their leases to expire. In particular, by January 2021, the national vacancy rate had increased 40 basis points month-over-month to 14.6% and 80 basis points year-over-year. The national average full-service equivalent listing rate also increased by 26 cents month-over-month, resting at $38.32 per square foot in January 2021. And, unfortunately, it looks like no one was spared. Pricey markets like San Francisco and Manhattan saw significant year-over-year increases in vacancy rates (410 and 250 basis points, respectively) as workers and companies started leaving. Likewise, in smaller markets like Nashville and Austin — where out-migration from coastal markets made for a robust office-using employment market — office stock increased by 4.1% and 3.9%, respectively. Sales activity also decreased: Office transactions closed during January 2021 totaled $3.4 billion versus January 2020’s $5.2 billion.  

However, despite the current decline in the use of traditional office space, there is currently 163.8 million square feet of office space under construction nationwide — 78.7% of which is in urban markets — although most of this total is concentrated in a few markets. And, while gateway markets like Manhattan, Boston and Los Angeles have their usually hefty volume of works in progress, smaller markets are also seeing growth. Specifically, more than 8 million square feet of new office space is under construction in both Austin and Charlotte. Likewise, Raleigh-Durham has 4.1 million square feet under construction (which accounts for 6.5% of the stock). And, Seattle has been rapidly adding office space for years. Here, more than 12% of all stock was delivered in the past five years and another 5.2% is under construction.

Use the prompt directly below to download the full report to access a comprehensive analysis of how the U.S. office market fared in the first month of 2021, as well as insights on the recovery path ahead.

The post CommercialEdge National Office Report February 2021 appeared first on CommercialEdge.

In 2020, the office industry saw a move from traditional office space to remote work. And, while the COVID-19 vaccine promises a return to the “old normal” — in which employees work in the office full-time — the reality is different. Rather, now that employers have had their employees telecommuting for about 10 months, many are reevaluating both the necessity of office space, as well as whether remote work can continue indefinitely.  

To that end, our recent national office report noted that, by December 2020, office-using employment had fallen 3.4% year-over-year (Y-o-Y). In fact, of the 120 markets our report reviewed, only 16 saw year-over-year job growth. Similarly, the national average full-service equivalent listing rate fell $.24 in December from the previous month, settling at $37.76 per square foot and representing a 1.0% Y-o-Y decrease. Meanwhile, the national vacancy rate increased 40 basis points to 14.2%.  

Meanwhile, the idea of converting office spaces into multi-family properties has been discussed in dense urban areas due to challenges presented by housing affordability and availability. Specifically, given the decrease in leasing, New York Governor Andrew Cuomo proposed converting vacant commercial buildings into affordable housing through “legislation to create a five-year period during which property owners may convert office buildings … in New York City to residential use.” 

Yet, despite the challenges presented by the pandemic; construction has not halted. For instance, in 2020, the U.S. saw 67.6 million square feet of new office stock completed — 32.2 million square feet in suburban markets and 35.4 million square feet in urban/central business district markets. Currently, 164.6 million square feet of office space is under construction, 93.4% of which are A+ or A properties. 

Two key markets to watch are Charlotte, N.C., and Austin, which are currently ahead of the pack with 11.5% and 10.8%, respectively, of the total stock of office space under construction. Moreover, together, these cities account for 10% of all new square footage under construction. And, although New York remains the world’s financial capital, these two mid-sized markets have become popular with developers since financial firms began relocating there. For example, in Austin, the financial sector has been responsible for almost half of office-using employment here since 2019. As a further testament to the economic strength of the Austin market, the city saw a 6% Y-o-Y growth in office-using employment — primarily driven by the financial sector and tech relocations — despite the weak improvements in job numbers.  

Use the prompt directly below to download the full report and access a comprehensive analysis of how the U.S. office market really fared in 2020, as well as insights on the recovery path ahead.

The post CommercialEdge National Office Report January 2021 appeared first on CommercialEdge.

The COVID-19 pandemic touched countless aspects of life in 2020, including many commercial real estate asset classes, which were negatively affected. However, one that went against the grain was industrial space — which, unlike the multifamily and office classes, saw growth in rents and sale prices. At the same time, changes in consumer behavior due to the pandemic caused an upswing in e-commerce. In turn, this drove a notable increase in new industrial construction.

Accordingly, our report of the top 20 U.S. industrial markets found that, on average, in December 2020, industrial rents grew nearly 5% year-over-year (Y-o-Y). What’s more, throughout 2020, industrial space sale prices also increased by 7.8% per square foot. And, with demand on the rise, construction skyrocketed, yielding a pipeline of 228.4 million square feet of new industrial space in 2020 — the most this century.

California Markets See Lowest Vacancies & Highest Rents in 2020

In December 2020, the average rent for industrial space in the top 20 U.S. markets had increased 4.8% Y-o-Y to end at $6.38 per square foot. In fact, aggregated data of average rent prices provided by Yardi Matrix Expert shows that Orange County had the nation’s highest rent per square foot ($10.97), followed by the Bay Area ($10.26) and Los Angeles ($9.57). 

Likewise, the most dramatic year-over-year price growth was also on the West Coast. Specifically, the Inland Empire and Los Angeles led the way with 6.9% and 6.8%, respectively, while Orange County trailed behind at 5.0% — likely due to its proximity to the Ports of Los Angeles and Long Beach. Hence, it comes as no surprise that, while the vacancy rate across the top 20 U.S. industrial sector markets stood at 6.2% in December 2020, West Coast cities had much lower vacancy rates. Namely, the Inland Empire boasted the lowest vacancy rate at 2.8% and Orange County came in second with a 3.3% vacancy rate.

Average Industrial Sales Price Per Square Foot Grows 8% Y-o-Y

Meanwhile, the same surge in demand fueled by e-commerce that drove an increase in rental prices also kept investors’ interest piqued. In particular, at $93 per square foot, the average sale price for U.S. industrial space in 2020 was 7.8% higher compared to the previous year. Moreover, industrial sales closed across the top 20 U.S. markets totaled nearly $29 billion in 2020 — which represents more than 75% of the total sales volume recorded in 2019.

Of the markets analyzed for this report, Los Angeles raked in the largest dollar volume — industrial sales that closed here last year totaled $2.2 billion. Chicago came in second with a yearly sales volume of $1.9 billion, and Bay Area industrial sales amounted to just under $1.5 billion for third.

2020 Marked 10-Year Record High in New Industrial Construction

The massive shift of retail from in-store to online — largely due to restrictions required to fight the spread of COVID-19 — had a positive effect on industrial real estate construction in the U.S. For instance, during 2020, 228.4 million square feet of industrial space was delivered — 10% more new stock than any other year in the past decade. Notably, this record was set despite supply chain issues and stay-at-home orders that slowed or halted some projects during Q2.

Because consumer behavior is likely to continue driving demand for industrial facilities, it may take several years for supply to catch up. Currently, there is nearly 206 million square feet of industrial space under construction and roughly 189.5 million square feet in the planning stages.

Methodology

This national report looked at one year’s worth of data on the top 20 U.S. industrial markets, with a focus on average rents; vacancy (including subleases but excluding owner-occupied property); deals closed; pipeline yield; and forecasts, as well as the economic indicators most relevant to the performance of the industrial sector.

Use the prompt below to download the full report to access a comprehensive analysis of how the U.S. industrial markets fared by the first month of 2021, as well as insights on the recovery path ahead.

The post CommercialEdge National Industrial Report January 2021 appeared first on CommercialEdge.