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NREI Research Series
Part 3: The Leasing Front

Part 3: The Leasing Front

Cushman & Wakefield reported that U.S. industrial markets absorbed 63.6 million sq. ft. of space in the final quarter of 2016, which propelled net absorption for the year to a record-setting 282.9 million sq. ft. As of January 2017, the industrial sector has registered 27 consecutive quarters of net occupancy gains. It is also among the strongest three-year periods on record, with net absorption for the past three years, 825.5 million sq. ft., surpassing the strongest prior period of occupancy growth, 726.8 million sq. ft. from 1997 to 1999.

Industrial real estate pros expect further gains in 2017. Overall, 56 percent of respondents said they expect occupancy rates to rise in their region this year. An additional 28 percent expect no change. Only 15 percent think occupancy rates will decrease.

The national industrial vacancy rate for all product types continued to decline in the fourth quarter, according to Cushman & Wakefield, falling 30 basis points from the prior quarter and 100 basis points from the prior year to 5.5 percent.

U.S. industrial asking rents increased 3.9 percent in the fourth quarter compared to 2015. Industrial rents increased in 61 of 79 markets tracked by Cushman & Wakefield from the fourth quarter of 2015 to the fourth quarter of 2016

Respondents remain bullish on the outlook for rents. The majority of respondents (roughly 79 percent) said they expect rents to rise in their region in the next 12 months. Only 4 percent said they think rents will decline. And about 16 percent said they will remain flat. Those numbers are similar to what the survey recorded the past two years.

Respondents were asked to rank the relative strength of their region. The results were similar to the past two years in terms of the relative rankings (on a scale of 1 to 10)—with the West (8.1) and the South (7.5) continuing to top the East (7.4) and Midwest (6.7).

However, the sentiments declined within three of the four regions compared to 2016. The West fell 20 basis points from 8.3 last year. The East was flat. The South fell 30 basis points and the Midwest fell 70 basis points. 

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