Industrial Real Estate Set for Record Breaking Year

Industrial Real Estate Set for Record Breaking Year

The industrial real estate market will continue to have another record breaking year, following a strong finish in 2016. Demand for industrial real estate has outpaced supply bringing vacancy rates down to 5.8 percent at the end of the third quarter in 2016 according to the most recent report by JLL Industrial Investment Outlook.

Overall the U.S. industrial market is resilient in many major markets and in some secondary markets, both with existing products and in new construction.  Year over year investment in industrial real estate is down 28.9 percent from the same period of 2015,but total investment volumes are on track to set the second largest tally since 2008.  There are five factors that will drive demand in 2017.

  1. Increased infrastructure spending is expected. There is an increased increase in spending resources on infrastructure in response to President Trump’s expressed interest in developing better roads, bridges and other infrastructure across the United States. The increase in infrastructure will have a positive impact on industrial real estate as upgrades are planned, and raw materials need to be stored in warehouses.
  2. E-commerce and logistics continue to grow. Online retailers continue to meet the increasing consumer demand for delivery of goods at a more rapid and cost effective manner. This need to improve the supply chains for consumer goods will continue the demand for distribution centers and warehouse space.  The growth in e-commerce was a key factor in lowering the national industrial market’s vacancy rate during the second half of 2016 to less than 16 percent, with continued declines expected in 2017.
  3. Ports will benefit due to demand for both more infrastructure spending and the growth in e-commerce. These two factors are expected to contribute to the revival of America’s ports, with high demand for surrounding distribution centers, repurposing of obsolete terminals and  mixed-use infrastructure to meet the demands of the global supply chain.
  4. Institutional investors view investment in industrial real estate as lucrative. The JLL Industrial Investment Outlook report predicts that year end sale volumes could be above $45 billion, the second largest annual tally since 2008. This strong investment activity is expected to withstand any global economic, political or financial uncertainty.
  5. Secondary markets are benefiting from the demand for industrial real estate in e-commerce. The unprecedented investment in industrial real estate and the consumer demand for improved delivery of goods, has resulted in investment in smaller urban core warehouses and fulfillment centers to find new solutions to improve the supply chain.

Source: JLL Industrial Investment Outlook, Q3 2016 United States

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