While record levels of leasing, rent growth and construction have become the norm for the U.S. industrial market since the start of the pandemic, it’s important not to gloss over the spike in leasing that the market achieved during mid-2021 or dismiss these recent gains as just more of the same.
Second-quarter 2021 industrial leasing was phenomenal even by pandemic standards, with the amount of space leased surging a whopping 80% above the typical second-quarter averages posted from 2017 to 2019. The amount of space being leased this year amounts to one of the most rapid expansions in U.S. commercial real estate history.
One key question that was raised at midyear was whether the U.S. industrial market could maintain these booming leasing levels through the second half of the year.
Real-time indicators of market momentum already signal that the answer is a resounding yes for the third quarter of 2021.
Flush with savings accrued from stimulus checks and social distancing, U.S. consumers continue to spend at historic levels on physical retail goods, both in stores and online. Nearly all the consumer goods Americans are splurging on need to be stored in distribution centers, driving more demand for industrial space.
Leasing is holding steady at the record-shattering levels achieved during the second quarter. Meanwhile, increased levels of speculative development have done little to dent landlords’ current leverage in lease negotiations. Asking rents for industrial space have generally climbed since July 2020, while office landlords have generally lowered rates during the same period. Among industrial landlords and brokers who revised advertised rents for industrial property from mid-June through mid-September, the average increase was 6.5%, in line with levels recorded during the previous quarter.
With the impact of stimulus checks beginning to fade and enhanced unemployment benefits having expired after Labor Day, retail sales and industrial leasing could begin to cool later this year.
But there is no sign of a leasing slowdown just yet, and with multitrillion-dollar spending packages being negotiated in the U.S. House and Senate, a dramatic and sustained pullback in momentum seems unlikely anytime soon.
Source: CoStar, Sept 23, 2021. To see full article, visit: https://product.costar.com/home/news/1172913400
