While industrial real estate might sound like a niche topic, it's actually a critical component of our daily lives. Every product you order online passes through warehouses and distribution centers - the backbone of America's supply chain. Today, these industrial spaces are becoming increasingly scarce as companies engage in fierce competition for available properties.
A Market at Record Tightness
According to a recent report from CBRE, the global commercial real estate services firm, the availability rate for U.S. industrial properties has reached its lowest point since 2000. The fourth quarter availability rate dropped to just 7.0%, marking the 34th consecutive quarter of decline - the longest downward streak since CBRE began tracking this data in 1988.
This availability rate represents all industrial space currently available for lease, including both vacant properties and occupied spaces being marketed for new tenants. The comprehensive measurement provides a clear picture of the intense competition businesses face when seeking warehouse and distribution facilities.
Regional Variations in a Tight Market
The CBRE report reveals significant regional differences in market conditions. While 38 markets saw availability rates decline in Q4, 20 markets actually experienced increases, with 6 remaining stable. This geographic variation means companies must carefully evaluate local conditions when planning expansion or relocation strategies.
Demand Outpaces Supply
The fundamental driver behind this market tightness is simple: demand continues to significantly outstrip supply. Net absorption (the amount of space leased minus space vacated) reached 63 million square feet across CBRE's 55 tracked markets, far exceeding the approximately 57 million square feet of new construction completed.
While the gap between demand and supply narrowed slightly from Q3's 9.3 million square feet to 6.2 million square feet in Q4, the annual deficit remained substantial at 29 million square feet for 2018. CBRE analysts caution against reading too much into quarterly fluctuations, noting that the long-term trend clearly shows sustained demand growth.
Expert Insights: Preparing for Continued Growth
CBRE's Global Chief Economist Richard Barkham described the 7% availability rate as "better than expected," expressing optimism about demand levels through 2019. He highlighted several key considerations for both property owners and tenants in this competitive environment.
"Our primary concern is that logistics operators might struggle to find suitable space if economic growth continues as projected," Barkham noted. "This makes the development of pop-up logistics spaces particularly interesting to watch."
These temporary, flexible warehouse solutions could help businesses manage short-term needs while waiting for permanent facilities. Barkham also emphasized the importance of focusing on long-term growth drivers, particularly e-commerce, which shows no signs of slowing its expansion.
Strategic Recommendations for Businesses
Facing these market conditions, companies dependent on industrial space should consider several proactive strategies:
1. Advance Planning: Begin searching for new facilities 12-18 months before current leases expire to allow adequate time for site selection, negotiation, and customization.
2. Geographic Flexibility: Explore emerging markets beyond traditional logistics hubs where competition may be less intense and rates more favorable.
3. Space Optimization: Implement advanced warehouse management systems, automation, and vertical storage solutions to maximize existing square footage.
4. Alternative Solutions: Monitor the development of pop-up logistics spaces for temporary needs during peak periods or transitions.
5. Developer Partnerships: Build relationships with reputable developers to gain early access to new projects and potential customization opportunities.
6. Technology Adoption: Stay informed about logistics innovations like drone delivery and autonomous vehicles that may reshape future space requirements.
The Bigger Picture: Economic Forces Driving Demand
The industrial real estate boom reflects broader economic trends:
E-commerce Growth: Online shopping's relentless expansion requires massive warehouse networks to store and distribute goods.
Supply Chain Evolution: Companies prioritize proximity to consumers, driving demand for urban and last-mile distribution centers.
Manufacturing Reshoring: Some production returning to the U.S. creates additional demand for industrial facilities.
Economic Expansion: Strong consumer spending and employment growth continue fueling demand across sectors.
As these trends show no signs of reversing, America's industrial real estate market appears poised for sustained growth. Businesses that adapt strategically to these competitive conditions will be best positioned to thrive in this new era of constrained supply and robust demand.