As the first quarter of 2018 came to a close, drivers of supply chain demand, such as consumer consumption, business inventories, and industrial production, showed continued growth.1 This growth impacted the U.S. industrial real estate market as vacancy rates fell in two-thirds of the country. Now reported at 5 percent, the average vacancy rate is down from 5.3 percent from the previous quarter.2
Industrial Overall Vacancy
The market also absorbed 56.9 million square feet of space, which marked the fourth strongest Q1 in the past 30 years.3 Overall the average vacancy rate across the country is low, however, here are some areas that are experiencing lower rates than other, especially those considered top logistics hubs.
As the market tightens, possible tenants are facing the fact that 61.2 percent of available space is more than twenty years old, and over half of that space has ceiling heights that are less than 28 feet. With today’s warehouse heights reaching an average of 32.4 feet, the lack of height limits efficiencies for potential tenants.4 E-commerce has played a major role in the need for larger and higher facilities, in order to handle larger volumes of goods. 5
Instead of fitting into pre-existing space, companies are opting to develop to meet their distribution and fulfillment needs. In the first quarter, 42 markets within the U.S. reported development levels increasing quarter over quarter. In fact, there are currently over 251 million square feet of industrial space under construction including many build-to-suit buildings.6 These facilities provide efficiencies to tenants for current and future growth.
As the year continues, the U.S. economy shows no sign of fatigue. Cushman & Wakefield forecasted that the vacancy rates will remain lower than the historical average of 8.4 percent for the remainder of 2018.7 As the market remains steady, planning ahead and forecasting potential demand to proactively procure space can be helpful in ensuring distribution capacity.