Industrial real estate experiencing ‘unprecedented growth’

Experts who have studied the industrial space market say they are seeing something they have never seen before in their decades of careers: “unprecedented, historic and record breaking” demand.

The widespread expansion of e-commerce in recent years and Americans’ ability to amass money during the pandemic has puzzled the country’s industrial real estate market, the impact of which is being felt strongly in the capital city area.

Richard Sleasman, President and Managing Director of CBRE Albany, said there was no market in the country that did not report “record demand for space and limited inventory,” including Albany.

“Demand for industrial space nationally, yes internationally…. is off the charts, ”he said.

The commercial real estate agency reported that the available supply is drying up and is quickly being absorbed, while the demand for warehouses and similar properties remains undiminished.

CBRE Albany publishes a semi-annual report documenting market trends. In June, the vacancy rate for commercial space in the capital region was 2 percent.

“It’s like having no product,” said Sleasman, emphasizing that he thinks the company’s December dates are unlikely to change.

According to Peter Quinn, board member of the International Warehouse Logistics Association (IWLA), the amount of industrial space absorbed has already doubled in the first three quarters of 2021 compared to the previous year. And the country’s vacancy rate fell by around 108 basis points and was only 4.5 percent.

Jason Sommer, co-owner of Diamond Point Development, has searched the region and other parts of the country extensively for places to build self-storage facilities. The self-storage business is also experiencing increased demand due to the pandemic uncertainty and a strong housing market.

Finding commercial space in a tight market has proven extremely challenging. Finding a suitable place to develop self storage is difficult enough when looking for a location where demand will not be met and local government will allow it. But when you attack the effects of record breaking trends, the pressure is compounded.

“The whole idea of ​​developing a property now has become a lot more expensive compared to two years ago, a lot more time consuming to find the right location, and a lot more difficult to build due to supply chain issues,” said Sommer.

Scarce supply and increasing demand give way to higher prices

Industry experts have found that the high-demand, stock-constrained industrial real estate sector is changing the landscape in two ways. It is driving prices up in unprecedented ways and relying on the markets to create more space and opportunity, explained Sleasman.

Prior to 2018, the lease rate for a Class A warehouse in Colonie was about $ 5.50 per square foot annually. Today, and looking ahead to 2022, Sleasman says the same space rents between $ 7 and $ 8 per square foot or more, according to Sleasman.
Increased rental rates are also not only found at large hubs, the tertiary markets in remote regions have to face the same price increases.

The IWLA found that asking rents this year are almost 6 percent higher than in 2020, and in some markets even 35 percent more.

“I’ve been in business for over 30 years and I’ve never seen anything like it,” Quinn said.
But the unprecedented growth goes beyond the price. According to IWLA, around 477 million square feet of industrial space are currently being built across the country, an increase of 40 percent over the previous year.

Pay the price because you need the space

And companies will pay these exorbitant prices if they can supply customers with them.

“Price doesn’t matter at this stage,” said Quinn. “It is imperative that they get the place. The federal government put a lot of money in the market so people can spend more money, which means that more companies come up to offer the products. ”

With the heavy sales of industrial buildings, property developers are making remarkable gains, watching it spill over onto investors and potentially change their view of the market. Investors who have traditionally not invested in industrial real estate think twice about it.

“The industrial market is now seen by the investment community as a very stable part of the commercial real estate sector – a lot of money goes into investing in industrial buildings,” said Sleasman.