The "last item" effect familiar to e-commerce shoppers – that urgency-inducing message prompting immediate purchases – has now permeated the industrial real estate sector. Recent data from JLL paints a striking picture: warehouses and distribution centers are being absorbed at unprecedented rates, vacancy levels have plummeted to historic lows, and rental prices continue their upward trajectory.
Market Overview: Tight Supply and Record Rents
JLL's Q2 2021 U.S. Industrial Outlook reveals an exceptionally tight market across multiple metrics, creating significant challenges for businesses seeking industrial space.
Vacancy Rates Hit Historic Lows
The national average industrial vacancy rate stands at just 4.8%, marking one of the lowest quarterly figures on record. This scarcity varies significantly by region:
- Major logistics hubs like Los Angeles, New York, and Chicago report vacancy rates below 3%
- Secondary markets show slightly higher availability but still below historical averages
Rental Prices Reach Unprecedented Heights
Average industrial rents have climbed to $6.62 per square foot, with annual growth rates of 5.1%. JLL projects continued rent increases of 4-7% annually, driven by:
- Intense competition for limited space
- Rising construction and labor costs
- Broader inflationary pressures
E-commerce Fuels Logistics Demand
Logistics and distribution accounted for 24.9% of all leasing activity in the first half of 2021, totaling 60.7 million square feet. This surge reflects:
- Accelerated adoption of online shopping
- Expansion of last-mile delivery networks
- Growth of third-party logistics providers (3PLs)
Market Dynamics: Construction and Leasing Trends
JLL's U.S. Industrial Research Director Mehtab Randhawa notes the simultaneous growth in leasing and construction activity, though supply remains critically constrained.
Developer Response to Demand
Despite material shortages and price volatility, developers delivered 69 million square feet in Q2, with 408.6 million square feet currently under construction. Key observations:
- Steel shortages have had minimal impact on project timelines
- Developers continue to break ground on new projects
- Net absorption reached 107 million square feet in Q2
Shifting Negotiation Power
The current market strongly favors landlords, with tenants frequently compromising on:
- Facility specifications
- Location preferences
- Lease terms
Supply Chain Pressures Reshape Industrial Demand
Global logistics bottlenecks continue influencing industrial real estate requirements, particularly for:
Urban Logistics Infrastructure
The rise of same-day and next-day delivery expectations has increased demand for:
- Last-mile distribution centers
- Urban fulfillment facilities
- Cross-docking operations
Container Storage Needs
Supply chain disruptions have created unprecedented demand for:
- Temporary container storage yards
- Transload facilities
- Inventory buffer space
Future Outlook: Sustained Demand Meets Potential Constraints
With net absorption consistently outpacing new supply, analysts anticipate:
- Continued rental growth through 2022
- Intensified competition for prime locations
- Potential land scarcity in core markets
Strategic Considerations for Businesses
Companies navigating this competitive landscape should consider:
Advanced Space Planning
- Initiate site searches 12-18 months before need
- Evaluate secondary and tertiary markets
- Consider build-to-suit options
Supply Chain Optimization
- Implement distributed inventory strategies
- Invest in warehouse automation
- Develop strategic 3PL partnerships
The industrial real estate market presents both significant opportunities and challenges as e-commerce growth, supply chain restructuring, and manufacturing reshoring continue reshaping demand patterns. Businesses that adapt their logistics strategies to these evolving conditions will be best positioned for success in this competitive environment.