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NATIONALINDUSTRIAL MARKET
RESEARCH 1Q 2019
© NEWMARK KNIGHT FRANK | 2019 RESEARCH | 1
INDUSTRIAL SECTOR CONTINUES
TO OUTPERFORM IN EARLY 2019
The U.S. industrial market maintained strong fundamentals in 2019, with steadily rising asking rents and historically low vacancy during the first quarter of the year. Industrial space under construction reached a new cyclical high, as developers seek to capitalize on the consistency and strong returns of the industrial asset class.
NET ABSORPTION DECELERATES
While demand for industrial space remains elevated, net absorption declined compared with one year earlier. Absorption measured 36.7 million square feet in the first quarter of 2019, compared to 54.3 million square feet in first-quarter 2018. The dip in absorption can be attributed to a lack of vacant inventory, rather than a reduction in demand, as leasing activity proceeds at a feverish pace. Vacancy remains historically low, at 5.0% as of the end of the first quarter. Average asking rents continued to increase, with the first-quarter average measuring $7.24/SF, up 9.2% from one year ago and the highest quarterly average recorded this cycle. Since first-quarter 2014, asking rents have increased by an average of 6.4% annually, with a significant acceleration over the past year.
Fifteen of the 49 industrial markets tracked by NKF absorbed 1.0 million square feet or more in the first quarter, led by California’s Inland Empire with 4.0 million square feet and Chicago with 3.6 million square feet. Phoenix, Dallas, Pennsylvania's I-81/78 Corridor and Houston all recorded 2.0 million square feet or more of absorption during first-quarter 2019. Ten markets posted declines in occupied space, or negative absorption, during the first quarter, led by the Silicon Valley market.
Another way to measure demand for space is to divide absorption by total occupied space, which shows how rapidly the occupied base is growing regardless of a market’s size. For the first quarter of 2019, absorption equaled 0.3% of occupied space across the U.S., led by Charleston at 1.8%, and Pittsburgh and Phoenix each at 1.0%. By contrast, the Silicon Valley market saw occupied space shrink by 0.8% over the quarter.
The largest industrial lease of the first quarter was a direct lease signed by Amazon, for 1.1 million square feet in Fontana, California. Other noteworthy first-quarter deals included PVH Corp. signing a direct lease for 982,777 square feet in Atlanta, Georgia; Barrett Distribution signing an 829,464-square-foot direct lease in Memphis, Tennessee; and UNFI taking 682,800 square feet of new space in Riverside, California.
CURRENT CONDITIONS
• Absorption measured 36.7 million square feet during first--quarter 2019, down from 54.3 million square feet one year ago.
• Vacancy remains at a cyclical low, measuring 5.0% during the first quarter of 2019.
• Average asking rents rose by 9.2% from one year ago to $7.24/SF in the first quarter of 2019.
• The national industrial construction pipeline remains robust, with 274.3 million square feet currently under construction.
MARKET ANALYSIS
Asking Rent and Vacancy Rate
Net Absorption
MARKET SUMMARY
Current
Quarter
Prior
Quarter
Year Ago
Period
12-Month
Forecast
Total Inventory (SF) 15.0 B 14.9 B 14.1 B é
Vacancy Rate 5.0% 5.0% 5.1% çè
Quarterly Net Absorption (SF) 36.7 M 65.1 M 54.3 M çè
Average Asking Rent/SF $7.24 $7.13 $6.63 é
Under Construction (SF) 274.3 M 250.9 M 237.0 M é
Deliveries (SF) 41.5 M 65.8 M 51.4 M é
0%
2%
4%
6%
8%
$5.00
$5.50
$6.00
$6.50
$7.00
$7.50
1Q14 1Q15 1Q16 1Q17 1Q18 1Q19
Va
ca
nc
y R
ate
Ask
ing
Re
nt
(NN
N)
Average Ask ing Rent (Per SF, NNN) Vacancy (%)
0
20
40
60
80
100
1Q14 1Q15 1Q16 1Q17 1Q18 1Q19
SF
(M
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on
s)
© NEWMARK KNIGHT FRANK | 2019 RESEARCH | 2
CONSTRUCTION PIPELINE AT NEW CYCLICAL HIGHDevelopers delivered 41.5 million square feet of new space to the market during the first quarter of 2019, down from the 65.8 million square feet delivered last quarter and 51.4 million square feet one year ago. Delivery totals have moderated from the 70.9 million square feet recorded in third-quarter 2017, but will likely increase over the next two years as the construction pipeline continues to grow.
Industrial space under construction rose to a new cyclical high in the first quarter of 2019, measuring 274.3 million square feet, up from 237.0 million square feet recorded one year ago. Industrial space under construction has remained above 230.0 million square feet since the first quarter of 2017. Groundbreakings continue to increase nationwide, as warehouse-using tenants demand more space to house growing operations, often in service of e-commerce.
Six industrial markets have more than 10 million square feet of industrial space under construction as of first-quarter 2019, led by Dallas with 32.7 million square feet and California’s Inland Empire with 25.1 million square feet. Atlanta, Houston, Pennsylvania’s I-81/78 Corridor and Chicago rounded out the top six, each with greater than 14.0 million square feet under construction.
Industrial space under construction as of first-quarter 2019 equaled 1.8% of total inventory nationwide. Based on this metric, the supply was growing most rapidly in Las Vegas at 5.4% of inventory and Jacksonville at 4.5%. While neither Jacksonville nor Las Vegas has traditionally been considered a major industrial market, limited existing supply, along with a growing need for warehousing and distribution space in close proximity to population centers, has spurred development in these markets.
Markets that serve as international trade and distribution hubs and that are near large seaports or growing metropolitan areas will continue to see supply rise in the period ahead, as e-commerce and third-party logistics tenants keep expanding operations. Over the past several quarters, supply chain and third-party logistics providers were behind the majority of
large lease transactions signed throughout the national industrial market. These industries will continue to seek space in gateway markets to manage expanding global trade flows and the increase in e-commerce.
VACANCY RATE REMAINS AT CYCLICAL LOWThe U.S. industrial vacancy rate measured 5.0% during first-quarter 2019, even with one quarter ago but down 10 basis points over the past year. Vacancy is very tight in several major markets, notably Los Angeles at 1.2% and Cincinnati at 2.9%. Southern California’s access to the ports of Los Angeles and Long Beach make the regional industrial markets there highly desirable for the distribution of exports and imports, particularly with regard to Asia-Pacific trade, and have kept the vacancy rate at a consistently low level over the past several quarters. None of the 49 markets tracked by NKF recorded a double-digit vacancy rate during the first quarter of 2019.
ASKING RENT INCREASES PERSIST Average asking rents across the U.S. at first-quarter 2019 measured $7.24/SF triple net, up 1.5% from the fourth quarter of 2018 and up 9.2% from one year ago. Nine industrial markets experienced double digit rent growth over the past year, including Sacramento at 19.2%, Jacksonville at 17.7%, and Phoenix at 17.1%. Industrial rents have increased in each quarter since third-quarter 2011, affirming the incredible resilience and consistency of the market.
SALES VOLUME REMAINS ROBUST COMPARED WITH ONE YEAR AGOThe industrial sales market remains active, with sales volume measuring $58.3 billion in the 12 months ending March 2019, up from $44.8 billion one year ago. Investor confidence in the market remains high, as low vacancy, strong rent growth, and limited modern distribution facilities continue to drive robust investment in industrial assets. Additionally, as gateway markets experience tightening vacancy rates, investors are now allocating funds into emerging secondary markets where construction activity is rising to meet demand.
1Q 2019 NATIONAL INDUSTRIAL MARKET
0
50
100
150
200
250
300
2012 2013 2014 2015 2016 2017 2018 1Q 2019
Squa
re F
eet (
Mill
ions
)
Deliveries Under Construction
0.0%
0.4%
0.8%
1.2%
1.6%
2.0%
2012 2013 2014 2015 2016 2017 2018 1Q 2019
Cons
truct
ion
as S
hare
of In
vent
ory
CONSTRUCTION AS A SHARE OF INVENTORY
United States Industrial Market
CONSTRUCTION AND DELIVERIES
United States Industrial Market
© NEWMARK KNIGHT FRANK | 2019 RESEARCH | 3
1Q 2019 NATIONAL INDUSTRIAL MARKET
INDUSTRIAL MARKET CONTINUES TO OUTPERFORM OTHER ASSET CLASSESThe industrial market’s appeal to investors continued to grow in 2018—total returns for industrial properties during the fourth quarter measured 3.40% per the NCREIF Property Index, more than any other asset class. For the full year, the industrial market achieved a total annualized return of 14.30%, more than double that of multifamily or office assets.
WHAT TO EXPECTAs of the first quarter of 2019, the current U.S. economic expansion has become the second-longest growth cycle of the post-World War II era. If growth continues through mid-2019, the expansion will supplant the 10-year record set in the late 1990s by the technology boom. The Federal Reserve’s GDP growth forecast of 2.1% for 2019 indicates that economic growth may be moderating, although other factors, including a steady unemployment rate and wage growth, continue to point to a stable economy. Overall, the economic expansion cycle is in the mature phase but likely will continue at least into late 2019.
Market indicators during the first-quarter 2019 affirmed the industrial sector’s strength as an asset class; vacancy is historically low. Average asking rents for industrial space reached a new record high for the current real estate cycle and may continue to edge up in the months ahead, as demand remains strong.
Investors are finding the evolution of the American economy to be highly beneficial to well-located and modern industrial assets. Although e-commerce represents only 9% of total retail sales, the segment is accelerating rapidly, and potential tenants often struggle to find adequate space.
As consumers across demographic and economic spectrums continue to demand more rapid product delivery, developers have had to innovate their product and offer more efficient space in the largest urban markets. The surge in growth of e-commerce transactions and the demand for ever-faster shipping has pushed rents to a cyclical high. The growth in e-commerce has encouraged institutional investors to purchase more industrial product in order to capitalize on increasing demand and balance their portfolios.
With record-high asking rents and consistently low vacancy, the industrial market should sustain its above-trend growth through 2019. While the amount of industrial space under construction reached a new cyclical high in early 2019, demand has virtually matched new supply over the last 12 months. Robust leasing activity along with the continued expansion of e-commerce suggest sustained market growth during 2019.
NOTABLE 1Q 2019 LEASE/USER TRANSACTIONS
Tenant Market Building Type Square Feet
Amazon Fontana, CA 11263 Oleander Avenue Direct Lease 1,068,372
PVH Corp. Atlanta, GA 8500 Tatum Road Direct Lease 982,777
Barrett Distribution Memphis, TN 6100 E Holmes Road Direct Lease 829,464
UNFI Riverside, CA 1950 Meridian Parkway Direct Lease 682,800
Steelcase Rancho Cucamonga, CA 12400 Arrow Route Direct Lease 611,573
NOTABLE 1Q 2019 SALES TRANSACTIONS
Building/Portfolio Market Price Price/SF Square Feet
10400 Furnace Road Lorton, VA $142,000,000 $236 602,000
1955 W North Avenue Melrose Park, IL $125,000,000 $80 1,561,613
4300 N Harbor Boulevard Fullerton, CA $123,700,000 $187 663,257
500 S Muddy Creek Road Denver, PA $117,100,000 $76 1,539,407
2455 Conejo Spectrum Street Thousand Oaks, CA $106,300,000 $200 531,378
MARKET STATISTICS (CONTINUED ON NEXT PAGE)
Total Inventory
(SF)
SF Under
Construction
SF Absorbed
This Quarter
SF Absorbed
Year-to-DateVacancy Rate
Average
Asking Rent
(Price/SF)
National 14,968,063,416 274,275,966 36,673,963 36,673,963 5.0% $7.24
Atlanta 608,223,113 18,691,964 631,226 631,226 7.0% $5.26
Austin 92,047,266 2,127,482 -191,032 -191,032 7.6% $10.38
Baltimore 178,722,097 4,292,925 885,572 885,572 7.8% $4.77
Boston 212,028,960 2,245,623 -279,191 -279,191 6.8% $8.82
Broward County, FL 106,752,707 1,438,879 265,718 265,718 4.4% $9.27
Charlotte 74,716,117 2,289,487 1,240,908 1,240,908 6.7% $5.71
Charleston, SC 383,291,445 7,034,515 -1,203,498 -1,203,498 6.6% $4.67
Chicago 1,109,770,959 14,074,285 3,591,669 3,591,669 7.1% $5.64
Cincinnati 275,000,247 5,160,263 733,333 733,333 2.9% $4.60
Cleveland 285,759,154 2,956,775 215,991 215,991 5.2% $4.74
Columbia, SC 59,042,625 863,056 408,358 408,358 6.1% $3.98
Columbus 282,966,087 3,888,131 1,951,819 1,951,819 4.4% $3.93
Dallas 872,473,554 32,674,196 2,604,272 2,604,272 6.5% $5.98
Denver 291,286,949 5,364,574 708,818 708,818 4.9% $9.24
Detroit 394,295,535 3,443,548 1,176,979 1,176,979 4.2% $5.55
Greenville, SC 210,844,167 6,721,332 1,696,162 1,696,162 4.9% $3.72
Houston 532,106,718 15,222,879 2,014,949 2,014,949 5.3% $6.90
Indianapolis 327,755,313 6,671,231 856,247 856,247 3.8% $3.89
Inland Empire, CA 593,072,953 25,085,270 4,001,741 4,001,741 3.5% $7.71
Jacksonville 127,209,017 5,686,882 206,604 206,604 3.0% $5.38
Kansas City 281,041,189 1,597,799 823,773 823,773 5.2% $4.95
Las Vegas 113,975,841 6,136,133 849,143 849,143 4.8% $7.61
Long Island 159,636,031 630,310 -206,946 -206,946 3.6% $12.46
Los Angeles 1,042,140,538 6,695,722 1,017,959 1,017,959 1.2% $10.16
Memphis 264,005,721 3,961,692 338,115 338,115 6.1% $3.19
1Q 2019 NATIONAL INDUSTRIAL MARKET
© NEWMARK KNIGHT FRANK | 2019 RESEARCH | 4
Note: Absorption is the net change in occupied space over a period of time. Data may not match totals in some NKF metro reports due to different local methodologies. Asking rents are
quoted on a triple net basis.
MARKET STATISTICS (CONTINUED FROM PREVIOUS PAGE)
Total Inventory
(SF)
SF Under
Construction
SF Absorbed
This Quarter
SF Absorbed
Year-to-DateVacancy Rate
Average
Asking Rent
(Price/SF)
National 14,968,063,416 274,275,966 36,673,963 36,673,963 5.0% $7.24
Miami 215,220,030 4,025,237 376,122 376,122 4.0% $8.42
Milwaukee 233,786,663 1,671,214 216,483 216,483 4.4% $4.84
Minneapolis 385,192,773 1,010,000 967,094 967,094 3.4% $6.88
Nashville 240,489,298 5,143,743 -329,134 -329,134 4.2% $5.51
New Jersey Northern 645,666,308 5,737,258 700,415 700,415 4.5% $8.68
Oakland/East Bay 251,272,670 4,900,216 419,523 419,523 4.4% $14.71
Orange County, CA 260,417,766 576,876 -146,074 -146,074 3.1% $13.28
Orlando 185,369,814 1,800,574 65,489 65,489 3.8% $6.85
Palm Beach 48,358,855 297,870 -222,725 -222,725 3.9% $10.14
Penn. I-81/78 Corridor 345,075,624 15,129,050 2,185,262 2,185,262 6.2% $4.63
Philadelphia 498,849,427 3,510,080 1,633,491 1,633,491 5.9% $5.40
Phoenix 294,007,012 5,379,425 2,659,803 2,659,803 7.3% $8.71
Pittsburgh 136,993,418 268,887 1,330,283 1,330,283 6.9% $6.48
Portland 219,253,274 2,086,197 178,078 178,078 3.8% $8.61
Raleigh/Durham 117,525,349 2,438,105 -12,147 -12,147 5.4% $6.63
Sacramento 157,721,530 978,594 -429,995 -429,995 4.5% $7.44
Salt Lake City 227,364,258 6,884,796 1,084,720 1,084,720 3.9% $6.41
San Antonio 119,581,067 4,234,942 460,738 460,738 6.4% $6.13
San Diego 170,992,778 1,594,082 784,152 784,152 4.8% $12.41
Seattle 291,567,836 4,938,408 414,811 414,811 4.0% $9.48
Silicon Valley 216,530,770 3,325,449 -1,622,967 -1,622,967 7.8% $23.35
St. Louis 268,639,942 4,782,982 175,159 175,159 4.7% $4.80
Tampa/St. Petersburg 259,242,776 3,720,337 441,615 441,615 5.1% $5.86
Washington, DC 300,779,875 4,886,691 1,005,078 1,005,078 5.9% $8.72
1Q 2019 NATIONAL INDUSTRIAL MARKET
© NEWMARK KNIGHT FRANK | 2019 RESEARCH | 5
Note: Absorption is the net change in occupied space over a period of time. Data may not match totals in some NKF metro reports due to different local methodologies. Asking rents are quoted on a triple net basis.
© NEWMARK KNIGHT FRANK | 2019 RESEARCH | 6
ECONOMIC CONDITIONSThe U.S. economy grew at an annual rate of 2.2% during the fourth quarter of 2018, according to the Bureau of Economic Analysis’ revised estimate, which was released in March 2019. The inflation rate was 1.5% (not seasonally adjusted) for the 12 months ending in February 2019. The unemployment rate declined 20 basis points from one year ago, reaching 3.8% in March 2019, reflecting an economy near full employment, though one in which job openings and the skills of available labor are not well aligned. Employers added 196,000 new jobs in March 2019, an increase from the 182,000 added in March 2018, with Mining and Logging, Construction, and Leisure and Hospitality among the notable growth sectors. Economic confidence continued to ebb and flow in the first quarter, as numbers released by the White House and the Fed differed. Concerns over trade tensions with China and issues at the Mexican border remain volatile, leading the Fed to lower its growth forecast to 2.1% in 2019 and 1.9% in 2020, while indicating there would be no interest rate hikes in 2019 rather than the two that were initially planned, and one in 2020. Still, other factors, including a steadily low unemployment rate and modest wage growth, continue to point to a stable economy despite these headwinds.
1Q 2019 NATIONAL INDUSTRIAL MARKET
Source: U.S. Bureau of Labor Statistics, NKF Research; April 2019
* Includes total unemployed, marginally attached workers, and those working part time for economic reasonsSource: U.S. Bureau of Labor Statistics, NKF Research; April 2019
* Includes manufacturing, wholesale trade, and transportation and warehousingSource: U.S. Bureau of Labor Statistics, NKF Research; April 2019
*Excludes food and energy, which can be volatile; 1982-84=100Source: U.S. Bureau of Labor Statistics, NKF Research; April 2019 Source: U.S. Bureau of Labor Statistics, NKF Research; April 2019
UNEMPLOYMENT RATE
United States, Seasonally Adjusted
CONSUMER PRICE INDEX (CPI)
United States, 12-Month % Change, Not Seasonally Adjusted
EMPLOYMENT BY INDUSTRY
United States, 2018 Annual Average
PAYROLL EMPLOYMENT
United States, 12-Month % Change , Not Seasonally Adjusted
EMPLOYMENT GROWTH BY INDUSTRY
U.S., March 2019, 12-Month % Change, Not Seas. Adj.
0.5%1.9%
3.9%4.8%
5.8%
8.5%
11.0%
14.1%15.0%
15.9%
18.6%
Mining/Logging
Information
Other Services
Construction
Financial Activities
Manufacturing
Leisure/Hospitality
Professional/Business Services
Government
Education/Health Services
Trade/Transportation/Utilities
0%
4%
8%
12%
16%
20%
Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19
Unemployment Rate U-6 Rate*
Mining/LoggingConstruction
Leisure/HospitalityProfessional/Business Services
Education/Health ServicesTotal NonfarmManufacturingOther Services
Financial ActivitiesTrade/Transportation/Utilities
GovernmentInformation
0.0% 2.0% 4.0% 6.0% 8.0% 10.0%
-1%
0%
1%
2%
3%
4%
Feb-14 Feb-15 Feb-16 Feb-17 Feb-18 Feb-19
Total CPI Cor e CPI*
0%
1%
2%
3%
4%
5%
Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19Total Nonfarm Jobs Industrial Jobs*
1Q 2019 NATIONAL INDUSTRIAL MARKET
© NEWMARK KNIGHT FRANK | 2019 RESEARCH | 7
Newmark Knight Frank has implemented a proprietary database and our tracking methodology has been revised. With this expansion and refinement in our data, there may be adjustments in
historical statistics including availability, asking rents, absorption and effective rents. Newmark Knight Frank Research Reports are available at www.ngkf.com/research
All information contained in this publication is derived from sources that are deemed to be reliable. However, Newmark Knight Frank (NKF) has not verified any such information, and the same
constitutes the statements and representations only of the source thereof, and not of NKF. Any recipient of this publication should independently verify such information and all other information
that may be material to any decision that recipient may make in response to this publication, and should consult with professionals of the recipient’s choice with regard to all aspects of that
decision, including its legal, financial, and tax aspects and implications. Any recipient of this publication may not, without the prior written approval of NKF, distribute, disseminate, publish,
transmit, copy, broadcast, upload, download, or in any other way reproduce this publication or any of the information it contains.
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