Avison Young Releases Its Spring 2019 Global Industrial Market Report
Strong demand and tight supply define industrial property sector in markets around the world
ATLANTA – May 8, 2019 – Demand for industrial property across the globe continues to show remarkable strength in most markets. The demand for space continues to be driven by e-commerce and last-mile logistics as retailers seek further supply-chain efficiencies. Online retail giants and their third-party logistics partners are impacting market dynamics with their demand for large facilities near major cities. This trend has resulted in rising land and development costs in many key markets in which the largest companies are driving demand for customized design-build facilities that are fully automated and reliant on new technologies.
These are some of the key trends noted in Avison Young’s Spring 2019 Global Industrial Market Report, released today.
The report covers 64 industrial markets in seven countries across the globe: Canada, the United States, Mexico, Poland, Romania, the United Kingdom and South Korea.
"Today, I am delighted to share with you Avison Young's insights into the industrial market – a sector that continues to go from strength to even more strength," comments Mark E. Rose, Chair and CEO of Avison Young. "These insights are drawn from our annual industrial survey spanning 64 markets across seven countries and three continents, with a combined industrial stock of 15 billion square feet (bsf)."
Rose continues: "E-commerce logistics, distribution and warehousing requirements continue to drive the market and are increasing in line with online retail sales. This strong demand has driven down supply, with developers increasingly becoming more innovative in regard to maximizing value through the repurposing of obsolete assets such as vacant big-box retail stores and aged office buildings, as well as exploring multi-story facilities in a growing trend that caters to demand for close-in warehousing and distribution."
He adds: "Investor interest in the industrial sector continues to grow unabated and the forecast for the remainder of 2019 is that industry dynamics will continue to be positive, attracting investors and resulting in low yields and rising asset values."
The analysis also revealed that the development pipeline remains robust, in terms of both product deliveries and new space under construction. The significant level of development has seen vacancy increase in some markets. Despite this situation, nearly all industrial markets remain significantly supply-constrained. All markets monitored by Avison Young reported single digit vacancy rates, while vacancy rates fell or remained flat year-over-year in more than half of the industrial markets surveyed. The strong demand and tight supply continue to put upward pressure on rental rates.
The industrial sector’s fundamentals continue to draw capital, as investors are attracted not only to the newest distribution and warehouse facilities, but also to the opportunity to find additional value in older assets near urban areas. The dynamics have created a competitive market, which is reflected in higher asset values and low yields.
In the U.S., Atlanta is currently ranked third in industrial space under construction due to the market having such a low vacancy rate of 5.6%. However, of the 22.7 msf underway, only 17.6% is currently preleased which could cause the vacancy rate to increase over the next year if more space is not leased. In addition, last-mile logistics are fueling an increasing number of adaptive reuse projects and the 12-bsf U.S. industrial market continues to record exponential supply growth as it adapts to the modern requirements of occupiers.
The world’s largest e-commerce companies are driving demand for build-to-suit distribution centers that are fully automated and reliant on technology to create supply-chain efficiencies. In land-constrained metros, the redevelopment of obsolete assets like vacant big-box retail stores and aged office buildings is a growing trend that caters to demand for close-in storage, warehousing and distribution.
The average U.S. industrial vacancy rate was unchanged at 5% compared with one year earlier and the largest U.S. markets remained extremely healthy and landlord-favorable. Despite the strong leasing market indicators, the lack of vacant and available space limited growth opportunities; as a result, net absorption dropped 19% year-over-year to 195 million square feet (msf). With a rising construction pipeline of 274 msf and that space only partially preleased, the report predicts that vacancy could tick upward slightly in the coming months.
Investment volume climbed to $54.9 billion in the 12 months ending in first-quarter 2019 with demand for product surging and many new entrants trying to get a foothold in the asset class.
“Sale prices rose 15% year-over-year on a price-per-square-foot basis and, interestingly, we saw investors shift to secondary U.S. markets to take advantage of lower land and labor costs,” says Earl Webb, Avison Young’s President, U.S. Operations. “Still, overall sales volume for this asset class was – not surprisingly – driven by the country’s largest industrial markets, including Chicago and Los Angeles and the Inland Empire in Southern California.”
Webb adds: “Nearly all industrial markets remain supply-constrained and, in spite of added construction, e-commerce and other growth factors will keep industrial vacancy in the single digits over the next 12 months.”
For Atlanta Industrial Market perspective, please contact:
Chip Watson, SIOR
Brent Weitnauer, SIOR
Sara Barnes, Research Manager
About Avison Young
Avison Young is the world's fastest-growing commercial real estate services firm. Headquartered in Toronto, Canada, Avison Young is a collaborative, global firm owned and operated by its Principals. Founded in 1978, with legacies dating back more than 200 years, the company comprises approximately 5,000 real estate professionals in 120 offices in 20 countries. The firm's experts provide value-added, client-centric investment sales, leasing, advisory, management and financing services to clients across the office, retail, industrial, multi-family and hospitality sectors. For more information, please visit Avison Young Atlanta or follow them on Twitter.
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