Market Pulse: US Industrial Sector Still Solid

A crucial question, notes Colliers’ new report—how long will today’s conditions last?
James Breeze, National Director of Industrial Research. Image courtesy of Colliers International

It’s clear that the industrial real estate market is thriving as of the second quarter, says the most recent market outlook from Colliers International. Nationally, just 4.9 percent of industrial space is vacant, a record amount of new space (306.1 million square feet) is under construction, mid-year net absorption was 104.7 million square feet, and the national average rent hit a record $6.01 per square foot.


READ ALSO: Commercial Real Estate Outlook: Shifting Gears


Alongside all that, sales volume remains robust ($17.3 billion), though down 13 percent from last year, and average sales prices rose 3.3 percent year-over-year.

The report reinforces some of the key points in Prologis Inc.’s latest U.S. industrial business indicator, a survey of customer sentiment, released a month ago, among them the constraints on industrial development from a scarcity of available sites.

Indeed, Colliers tallies the now-usual headwinds: global trade wars, particularly with China; weakening economic fundamentals; and worsening labor shortages. And the recent Fed rate cut is noted as a portent of “a weakening global economy, anemic wage growth in the U.S. and increasing trade tensions,” wrote the report’s author, James Breeze, Colliers’ national director of industrial research.

Transportation and labor

Beyond the standard numbers and warnings, however, the Colliers report highlights several noteworthy issues and trends. A couple of intriguing metrics come from the transportation sector.

Total rail car traffic from July 2018 to July 2019 fell 3.1 percent, according to data from the Association of American Railroads. Similarly, the Cass Freight Index, a measurement of total freight movement nationwide, had declined 5.3 percent as of July.

Colliers also noted the pressure that rising transportation costs, in parallel with more expensive rents, are putting on occupiers, as that “final mile” is getting ever costlier. A further result, the report speculated, will be that occupiers will increase the number of their warehouse locations.

Given the difficulties of attracting labor, one new trend is for warehouse occupiers to offer more amenities. Distribution centers throughout the country are starting to look more like creative office space, according to the report, with upgraded break rooms, ping-pong tables and basketball courts, and even daycare for children.