Strong Occupier Demand Surmounts Wave of Historic Supply

175.1 million square feet (msf) of new deliveries have hit the market through the first three quarters of 2017, the largest wave of new space delivered in the first nine months of any year. Even so, industrial tenants have absorbed 187.4 msf of space, pushing the vacancy rate downward by 40 basis points (bps) year-over-year to a historic low of 5.1%. Average industrial asking rents for all product types have risen by 4.1% year-over-year to a new high of $5.80 per square foot (psf). Every industrial segment remains in growth mode with warehousing posting 167.2 msf of net absorption, manufacturing registering 11.3 msf of growth, and flex product experiencing 4.8 msf of net occupancy gains from January through September of this year.

Looking forward, net absorption will eclipse 230 msf for a fourth year in a row, and will reach 218 msf in 2018. Increased speculative supply will place upward pressure on vacancy as supply/demand slowly rebalance. We forecast average annual vacancy to rise 30 bps in 2018 to 5.3% for all industrial product type. Look for continued rental rate appreciation in Q4 2017, with rent growth slowly beginning to decelerate in 2018. We anticipate average annual rent gains of 3.7% in 2017, and 2.9% in 2018, for all industrial product types.

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