Supply is at an all-time low and outstripped by demand. Nationwide availability, a measure that looks at all space available for rent, including sublease space, is at 8.7 percent and trending downward, while vacancy for the second quarter stands at 5.8 percent, CBRE has found, with both metrics showing a 20 basis point decline quarter-over-quarter.
Supply is constrained for a number of reasons, according to Eric Frankel, an analyst with Newport Beach-based real estate research firm Green Street Advisors. As more development occurs in densely-populated areas (a change from prior cycles), entitlements grow harder to obtain, with cities concerned over truck traffic. He also cites a tougher financing environment for industrial properties and longer construction times, as some projects involve tearing down older buildings.
“The markets that have seen the most supply (as measured by total square feet built) have been largely the tier one major distribution hubs—Chicago, Inland Empire, Dallas, etc.,” Egan says. “This has been the trend for the entire cycle and looks to continue in the near term. However, one change we’ve seen recently is that the fastest growing markets (as measured by the ratio of new supply to total stock) are increasingly including well-located secondary markets—Kansas City, Greenville/Spartanburg, Lehigh Valley, Columbus,—which demonstrates the growth of the supply chain to a much wider variety of markets than in the past, all in the pursuit of locating as close to the largest numbers of customers as possible.”