Economists' Outlook

Housing stats and analysis from NAR's research experts.

Commercial Weekly: Increased Industrial Demand and Record Highs

U.S. industrial space completed Q3 2021 on a high note as old records were broken, and with demand outpacing supply for the fourth consecutive quarter. Additionally, more than 159.6 million square feet (msf) of industrial space was absorbed in Q3 2021- the most industrial space ever absorbed in any single quarter according to CoStar® data, which broke the previous record of 112.4 msf from Q2 2021. As of October 27, 2021, net absorption already exceeds Q2 2021’s level by a little more than 1 msf as we close out the first month of Q4 2021. Logistic space continues to be the strongest industrial property type with net absorption totaling 147.6 msf in Q3 2021 and totaling 113.4 msf as of October 27, 2021.

The industrial leasing market has been quite lively where leasing activity eclipsed 200 msf for the fifth consecutive quarter at 236.4 msf in Q3 2021 which brought the year-to-date (YTD) total to 780 msf as of October 27. The primary motivator for this level of demand is rooted in the need for more e-commerce and logistic space in an effort to keep pace with online sales. Demand for industrial space and taut availability increased competition amongst industrial tenants for space as asking rents reach all-time highs.

Rents as of October 27, were the highest ever recorded, hitting $9.65 s.f. with year-over-year rents increasing at a 7.6% rate as the industrial vacancy continues to decrease towards 4.5%.

At the close of Q3 2021, more than 71 msf was delivered, with 456.4 msf currently under construction. Coupling the industrial construction pipeline, which indicates no sign of deceleration and the sheer size of the pipeline, oversupply is a possibility. But net absorption and deliveries tell a different story. Considering net absorption continues to outpace net deliveries, it seemed that a possible supply shortage could occur as a result of the increase in demand for industrial product according to Q3 2021 CoStar® data. But early Q4 2021 data indicates that the gap between net absorption and net deliveries is decreasing.