Imagine a hyper-connected world where goods flow seamlessly between digital and physical spaces. In e-commerce warehouses, forklifts move like industrious ants, tirelessly transporting packages destined for consumers' doorsteps. Logistics centers operate with clockwork precision, automated sorting systems routing shipments with astonishing efficiency. These everyday scenes illustrate the remarkable vitality of the Industrial & Logistics (I&L) real estate sector, which continues to demonstrate resilience despite macroeconomic uncertainties.
Core Market Insights: A Foundation of Steady Growth
The latest Q3 report reveals an I&L market maintaining robust growth patterns. This resilience stems from multiple factors including e-commerce expansion, supply chain optimization, and sustained consumer demand. Below we analyze key performance indicators and their implications.
Availability Rate: Signs of Stabilization
Availability rate held steady at 7.2% in Q3 (vs. 7.1% in Q2)
After consecutive quarterly declines, the stabilization suggests improving market balance. While 7.2% indicates neither scarcity nor oversupply, this equilibrium benefits tenants through increased options and negotiating power. However, sustained availability increases could pressure rental rates downward.
Vacancy Rate: Minor Increase Warrants Attention
Overall vacancy rose 10 basis points to 4.4%
The modest increase primarily reflects new supply entering the market. Despite this uptick, vacancy remains at historically low levels, signaling continued strong demand. Market participants should monitor whether this trend accelerates, particularly in regions with substantial new development.
Net Absorption: Sustained Demand Momentum
Q3 net absorption reached 45.4 million sq ft (+16.8% QoQ)
This marks the 38th consecutive quarter of positive absorption, with 12-month cumulative absorption totaling 204.6 million sq ft. The accelerating demand likely reflects seasonal e-commerce activity and broader supply chain expansion needs.
New Supply: Modest Contraction
Q3 new supply totaled 55.7 million sq ft (-11.2% YoY)
The supply decline suggests market self-correction to prevent oversupply. While the 12-month cumulative supply remains substantial at 224.2 million sq ft, this moderation helps maintain equilibrium between supply and demand.
Rental Rates: Historic Highs
Net asking rents increased 1.3% QoQ (5.7% YoY)
Rental rates reached their highest level since CBRE began tracking in 1989, exceeding the post-2012 average annual growth by over 2%. This sustained growth reflects intense competition for quality I&L properties and confidence in the sector's fundamentals.
Macroeconomic Context: Limited Impact on Sector Performance
While 2019 GDP growth is projected to slow to 2.2% (from 2.9% in 2018), strong employment and wage growth continue supporting I&L demand. E-commerce, food/beverage, and home improvement sectors remain primary drivers of leasing activity, with companies expanding operations across industrial hubs.
Key Growth Drivers
Several structural factors underpin the sector's strength:
- E-commerce expansion: With U.S. e-commerce representing 10.7% of retail sales (growing at 13.6% annually), demand for fulfillment centers continues outpacing supply.
- Supply chain optimization: Companies prioritize efficient, flexible logistics networks, driving demand for modern facilities near transportation hubs.
- Manufacturing reshoring: 87,000 jobs returned to U.S. manufacturing in 2018, increasing demand for industrial space near consumer markets.
- Demographic trends: Population growth and urbanization fuel demand for last-mile logistics infrastructure.
- Technological advancement: Automation, IoT, and AI improve logistics efficiency, making modern facilities more valuable.
Strategic Considerations for Market Participants
As the I&L sector evolves, stakeholders should consider several strategic priorities:
- Precision site selection: Prioritize locations with strong transportation access, labor availability, and favorable regulatory environments.
- Technology integration: Implement automation and smart logistics solutions to enhance operational efficiency.
- Sustainability practices: Adopt green building standards to address environmental concerns and regulatory requirements.
- Market responsiveness: Maintain flexibility to adapt to shifting demand patterns and economic conditions.
- Risk management: Develop contingency plans for potential economic downturns or supply chain disruptions.
Market Outlook: Continued Growth with Emerging Challenges
Industry projections suggest sustained expansion, with global I&L markets expected to grow at 5% annually through 2024. However, participants must navigate evolving challenges including trade policy impacts, labor shortages, and the need for technological investment. The sector's ability to adapt to these dynamics will determine its long-term trajectory.