Charlotte, North Carolina currently has one of the tightest industrial markets, in terms of overall vacancy, in the United States. In the fourth quarter of 2016 Charlotte’s vacancy rate sat at just 3.6%. In fact, what we are seeing is tight numbers like this happening all over the country. 2016 was a record-setting year for this sector of commercial real estate. The U.S. industrial market posting year-end nationwide net absorption at 282.9 million square feet.
Want another mind-blowing number? With its longest expansion ever, as of January 2017, this sector had registered 27 consecutive quarters of occupancy gains. 27 quarters! That’s 6 years and 9 months of gains.
With markets across the country enjoying absorption at record pace, and the current local Charlotte market conditions, we think this is absolutely a sector to watch throughout 2017. Below we share what we’ve been seeing, reading, hearing and experiencing in the industrial commercial real estate sector. If you have questions about anything you read, or want to discuss further, feel free to contact us.
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Industrial Vacancy Rates on the Decline
Falling yet another quarter in 4Q16, the national industrial commercial real estate vacancy rate declined to 5.5%. What’s even more interesting is what’s going on with warehouses. Even though there was 156.8 million square feet of new warehouse product, the national vacancy rate still declined to 5.6% (dropping from last year’s 6.9%).
With tight markets all over the country, a predicted strong e-commerce and infrastructure investments, all signs point to industrial growth throughout 2017.
As we head into 2017, industrial experts are expecting 2016’s growth to continue. Contributing factors to this upcycle include economic data that points to confident consumers, widespread wage growth, and increased spending. Though the main driver of growth expected to be “booming” Internet sales with growing online retailers now in positions to pay high prices for best-located fulfillment space.
Jason Tolliver, Head of Industrial Research for the Americas, explains, “When consumers are confident the industrial market benefits, and consumers ended the year upbeat with multiple measures of consumer confidence reaching cyclical highs. Considering that consumer spending is a dominant driver of industrial demand, an optimistic U.S. consumer will be a boon to industrial leasing. It’s also worth noting that other important industrial-related indicators, such as containerized traffic flows, manufacturing indices, and business inventories demonstrate that the industrial market remains on a promising path.”
Low Inventory, High Rent
With new product levels low, and demand high, we are going to see higher industrial sector rents in the coming year. In fact, many markets across the U.S. are seeing historic rent highs. Fueled by low inventory from logistics and distribution center demand, asking rents for this sector increased by 3.9% in 4Q16 vs. 4Q15.
As industrial space demand continues to outpace supply, investors and users should expect tight markets and increasing rents, here in Charlotte and across major domestic markets. Also, don’t expect to have as many options. As quality Class A space becomes increasingly unavailable, many users will now consider Class B locations, boosting inland and tertiary market activity.
Percival Partners is one of Charlotte’s most recognized and respected commercial real estate firms with more than 50 years experience in the region. Our professional and experienced real estate Advisors are in the business of listening, understanding, and adding value. No matter the commercial property type you own or seek, you can count on the Percival Partners team to maximize your return and peace of mind. To reach us, you can call us at 704.632.1000 or follow us on Twitter at @SVNPercival, LinkedIn or Facebook.