The Q1 2019 U.S. Industrial and Logistics report from CBRE shows strong continued performance by the sector through the first quarter of the year.
Overall, though growth in some areas slowed year-over-year and quarter-over-quarter, the numbers were still strong across the board, leading CBRE analysts to express optimism about the performance of the industrial sector for the rest of 2019.
For the first time since Q3 2017, absorption fell just short of supply, with 31.6 million square feet absorbed versus the 33.2 million square feet that was delivered.
CBRE global chief economist Richard Barkham commented on the drop in absorption rate in a prepared statement, saying that a “tepid” start to the year was expected due to stock market turbulence at the end of 2018, along with a weaker global economy.
Barkham also said that CBRE expects net absorption to rise throughout the rest of 2019 due to what they see as positive domestic economic factors, including the ongoing shift toward eCommerce and strong consumer spending.
CBRE also points to the strong U.S. dollar, low inflation, and rising nominal incomes, which they predict will keep imports high through the remainder of the year, bolstering demand for industrial warehouse space. Imports are especially strong drivers of warehouse demand since, as the CBRE report notes, each dollar increase in imports requires three times more warehouse space than each dollar increase in exports.
The 33.2 million square feet that was delivered represented a 48.6% decline quarter-over-quarter and a 20.5% decline year-over-year. According to CBRE, this is a sign of discipline on the part of developers and indicates a low risk of late-cycle oversupply. And while the total supply of product delivered in the first quarter may have dipped, the under-construction pipeline grew 4.6% quarter-over-quarter, indicating stability on the supply side and supporting CBRE’s prediction that supply should remain steady for the near future.
Availability dipped very slightly (less than half a basis point) to 7%, marking the lowest level since Q4 2000. This subtle drop made it 35 consecutive quarters of declining availability, the longest streak since CBRE began tracking availability data in 1988. Vacancy remained at 4.3%, maintaining its lowest level since CBRE began tracking that number in 2002.
The low availability helped push net asking rents up 2.2% to $7.51 per square foot. This is the highest price per square foot that CBRE has seen since they began tracking asking rents in 1989, and it represents an increase of 8.1% year-over-year, the highest growth rate yet in the current cycle.