Trade Wars Are No Obstacle to Industrial Sector—Yet

By Scott Baltic, Contributing Editor

Matthew Dolly, Transwestern’s research director in New Jersey

Start with substantial net absorption, then add steady job gains, continued (though softening) retail sales growth and strong consumer confidence. The result is what you see in the U.S. industrial real estate market: a national average vacancy rate that remained below 5.0 percent despite “aggressive and widespread” new construction, according to a third-quarter report from Transwestern.

Likely because of tariff fears, port volumes are at record levels, boosting coastal markets.

The report found “rent growth across nearly every market tracked,” with a nationwide average increase of 7.3 percent year-over-year. The most stellar markets—Oakland/East Bay, Sacramento and Long Island—all hit rent growth more than double that national average.

But it wasn’t just the top markets that did well. Positive 12-month net absorption was seen in 44 of 47 markets surveyed, and positive third-quarter net absorption was seen in 35.

“High-quality infill remains in high demand by investors, causing average rent to blow by the $6 per-square-foot threshold,” Matthew Dolly, Transwestern’s research director in New Jersey, said in a prepared statement. “While construction continues at an aggressive pace, it can’t keep up with the red-hot demand. As a result, we’ve seen the U.S. industrial vacancy rate drop 300 basis points in the past five years.”

Stars, plus a deep bench

California’s Inland Empire, Atlanta and Chicago led all other U.S. markets in industrial absorption during the third quarter; the Inland Empire topped 25 million square feet over the previous 12 months, with preleased deliveries accounting for a significant percentage.

Among the strongest second-rank industrial markets in the third quarter were New Jersey, Baltimore and Dallas–Fort Worth.

For average industrial vacancy, Southern California took the prize, with both the Los Angeles and Orange County markets well under 2 percent.

Both DFW and the Inland Empire had more than 20 million square feet under construction, with Chicago and Atlanta close behind.

In August, Ivanhoé Cambridge acquired a total of 150 acres in Ontario, Calif., where Cap Rock Partners will develop a $450 million-plus, 11-building industrial project, called Colony Commerce Center.

Across the country, Saddle Creek Logistics Services signed a lease for 1.2 million square feet at Core5 Industrial Partners’ Southwest 85 Logistics Center, in Newnan, Ga., in the Southwest Atlanta submarket.

Image courtesy of Transwestern