A guest blog by NFI’s Chief Development Officer, Michael Landsburg
Over the last eighteen months, NFI’s Real Estate team has helped customers navigate the ins and outs of the industrial real estate market. The current market boom comes as a result of the COVID-19 pandemic and consequently, demand for new properties is higher than ever. As the transition from “just in time” to “just in case” inventories continue, much of the same can be expected for 2022. Our team feels very fortunate to have seen business growth through the pandemic and looks forward to providing our customers with the most efficient, technologically-advanced, and cost-effective warehousing options the market allows.
Over the past year, NFI has significantly grown its real estate portfolio. Our team has managed, by the numbers:
NFI’s space is a mix of both transportation and distribution-related assets. These are comprised of truck terminals, trailer parking lots, and transload facilities in the transportation category, along with traditional warehouse and distribution facilities in distribution. Our transportation assets are high-velocity facilities that process enormous amounts of inventory through an assortment of dock doors and trailer parking spaces. These locations are typically focused in port-centric markets including LA, Seattle, Houston, Savannah, Norfolk, and New Jersey. Distribution-related assets are focused in the core markets of New Jersey, Lehigh Valley, PA, Atlanta, Chicago, Dallas, Southern California, and Toronto, with many additional geographies pursued on a case-by-case basis. All told, NFI has physical locations in 30 states across the US and 4 provinces in Canada.
As far as the overall industrial real estate market is concerned, there has been staggering growth there, as well. This year the market will see a record number of new construction projects at over 400 million square feet. However, with vacancy rates nationally at record lows (3.6% through Q3), and demand being incredibly high, nearly 70% of the new space coming to the market has been pre-leased. This has resulted in vacancy rates remaining low and rental rates rising at a historic pace to record levels.
Rental rates have grown nationally by over 10% year over year (YoY), the highest national increase ever. Some markets in areas like New Jersey, Pennsylvania, and Southern California have grown by over 25% YoY, and rental rates in some of those areas’ specific submarkets have grown by close to 50% YoY. As this has been compounded with the growth in industrial rental rates over the last 5 years, we are seeing shocking rental rate increases when we renew leases that were signed 5-10 years ago. In some instances, these renewal rates have more than doubled.
Due to some of the effects of the pandemic on supply chains, the cost of new construction has skyrocketed and has impacted the timeline for the delivery of materials. This has meant that the effort to deliver a new building takes longer and costs more than ever before. We expect the rental rate growth trend to continue into next year given the sustained demand, construction cost, and schedule challenges.
All of these dynamics have attracted the interest of capital investing in the industrial and logistics real estate space, which continues at a record pace. We foresee institutions continuing to allocate capital and having an interest in investing in our space, which will further drive the demand for new properties, new opportunities, and pricing growth of existing assets. These dynamics don’t seem to be slowing as we move into 2022 — we expect new capital that has never invested in industrial trying to enter the space.
As for the NFI Real Estate team, we continue to grow and support NFI’s business and welcome talented new employees alongside our existing family of professionals. As shippers continue to seek warehousing space, our teams are prepared to guide our partners through the process. After an unpredictable 18 months, we’d like to extend a heartfelt thank you to all of our partners, vendors, and suppliers for entrusting the NFI Real Estate team to fulfill your warehousing and industrial real estate needs.
Michael Landsburg is the Chief Development Officer of Real Estate at NFI and has been with the company since 2005. He is responsible for managing the real estate activities for the NFI-owned portfolio. Michael and his team develop customized industrial real estate solutions for shippers across North America.
Data in this overview was collected from CBRE and Colliers International reports.