Industrial real estate experiencing ‘unprecedented growth’

Experts who have engaged with the market for industrial space say they are seeing something they’ve never seen in their decades-long careers: “unprecedented, historic and record-setting” demand. 

The widespread expansion of e-commerce in recent years and Americans’ ability to stack up money during the pandemic has created a conundrum for the country’s industrial real estate market with impacts being felt strongly in the Capital Region.

Richard Sleasman, CBRE Albany’s president and managing director, said there’s no market in the country that’s not reporting “record demand for space and limited supply of inventory,” Albany included. 

“Demand for industrial space nationally, in fact, internationally…. is off the charts,” he said. 

The commercial real estate agency reported available supply is drying up and being absorbed quickly while demand for warehouses and similar properties remains unabated. 

CBRE Albany puts out a biannual report documenting trends in the market. In June, that report indicated the vacancy rate for industrial space in the Capital Region was 2 percent. 

“It’s like having no product,” Sleasman said, emphasizing that he anticipates the company’s December data will demonstrate little change. 

Nationally, the amount of industrial space absorbed during 2021’s first three quarters has already doubled what it was last year, according to Peter Quinn, a board member of the International Warehouse Logistics Association (IWLA). And the country’s vacancy rate dropped roughly 108 basis points leaving it at a slim 4.5 percent. 

Jason Sommer, co-owner of Diamond Point Development, has intently searched the region and other parts of the country for places to construct self-storage facilities. The self-storage business, due to pandemic-manifested uncertainty and a strong housing market, is similarly experiencing heightened demand.

The hunt for industrial land in a tight market has proven extremely challenging. Finding a suitable place to develop self-storage is tough enough when looking for a location where demand is unmet and local government will allow it. But tack on the effects of record-setting trends, and the pressure is exacerbated. 

“The whole idea of developing a property now versus where we were two years ago has gotten much more costly, much more time consuming to find the right site and much harder to build with supply chain issues,” Sommer said.

Tight supply and soaring demand give way to higher prices

Industry experts have found the high-demand, inventory-constricted industrial real estate sector is changing the landscape in two important ways. It is driving up prices in ways never before seen and leaning on markets to create more space and opportunity, Sleasman explained. 

Preceding 2018, the lease rate for a class A warehouse in Colonie was about $5.50 per square foot annually. Today and looking ahead to 2022, those same spaces are generating rents anywhere from $7 to $8 per square foot or higher, according to Sleasman. 
Elevated lease rates aren’t unique to major hubs either, tertiary markets in outlying regions are up against the same price hikes. 

The IWLA determined asking rents are almost 6 percent higher this year than in 2020, in some markets climbing as high as 35 percent more.

“I’ve been in the business for 30 plus years, and I’ve never seen anything like that right now,” Quinn said.
But the unparalleled growth extends beyond price points. The IWLA said  approximately 477 million square feet of industrial space is currently being constructed across the country, a 40 percent rise from last year.

Paying the price because you need the space

And companies will pay these exorbitant prices if it means they can provide for customers. 

“Price at this stage doesn’t really matter,” Quinn said. “It’s imperative that they get the space. There’s been a lot of money put into the market by the federal government, so people have more money to spend, which is causing more businesses to pop up to provide the products.” 

With the strong sale of industrial buildings, developers are attaining remarkable success and watching it trickle down to investors and potentially changing how they view the market. Investors who didn’t traditionally invest in industrial real estate are thinking twice about it.

“The industrial market now is seen by the investment community as a very stable part of the commercial real estate sectors – a lot of money is flowing into the investment of industrial buildings,” Sleasman said.

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