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Monday, May 15, 2017

Single-digit vacancy rates define rapidly evolving North America and U.K. industrial sectors

By Mark E. Rose (Toronto)

The industrial property sector continues to be characterized by sound fundamentals, irrespective of geography and geopolitical and economic conditions. Record-low or near-record-low vacancy rates, owing to robust demand, are placing upward pressure on rental rates. Development costs are also on the rise, due to dwindling land supply in some markets. Meanwhile, developers strive to deliver modern product to meet evolving tenant demand – increasingly driven by the retail sector and its goal to feed today’s insatiable consumer appetite. 

These are some of the key trends noted in Avison Young’s Spring 2017 North America and U.K. Industrial Market Report, which covers the industrial markets in 55 North American and U.K. metropolitan regions: https://avisonyoung.uberflip.com/i/822225-ayspring17namericaukindustrialreportmay11-17final

The industrial property sector’s metrics continue to impress the market as occupiers and investors alike are drawn to the sector’s stability. Though traditional manufacturing operations remain part of the industrial fabric, surging demand for online shopping – while causing disruption in traditional brick-and-mortar retail properties – has provided immense opportunities in industrial plant, distribution and warehouse assets as supply chains become increasingly complex and seek efficiencies. An increasing urban population base also means feeding the unquenchable demand of a fickle and growing consumer market that demands cost-effective, same-day delivery options.

There is one recurring statistic in virtually every market and country under our coverage – low vacancy rates. All but two markets posted single-digit vacancy at the conclusion of the first quarter of 2017. Keeping pace with demand, the development community delivered more than 218 million square feet (msf) over the past 12 months and had more than 205 msf under construction at the end of the first quarter. In increasingly land-constrained markets, developers are being forced to think outside the traditional warehouse footprint and are even contemplating multi-storey warehouses.

Of the 55 industrial markets tracked by Avison Young across North America and the U.K., which comprise almost 14 billion square feet, vacancy declined in 40 markets, remained unchanged in two and increased in only 13 during the 12-month period ending March 31, 2017.

The analysis revealed lower year-over-year industrial vacancy rates in 30 of 41 U.S. markets and seven of 11 Canadian markets. Logistics-driven demand cut Mexico City’s industrial vacancy rate by half to 3.2%, while in the U.K., the Coventry and London markets reported vacancy rates of 5.8% and 2.7%, respectively.

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