The industrial sector roared through the first quarter, but current supply and demand fundamentals position the aggregate U.S. industrial real estate market in the peaking phase, according to the Industrial Outlook 2017 report recently published by real estate services firm JLL.

National supply remains tight as demand fundamentals continue to show healthy appetite. Total net absorption of industrial space continues to outpace new deliveries. First-quarter total net absorption stood at about 58 million sq. ft., according to JLL, compared to 46 million sq. ft. of space delivered in the same period.

Despite higher rates of construction, space is simply hard to find, getting snapped up as soon as stakes are in the ground. Of the 247.2 million sq. ft. in space JLL estimates will be delivered in 2017, nearly 30% (combined) is build-to-suit or for an owner/user. The remaining space is being speculatively built, but pre-leasing rates for spec buildings have hit 27%, after increasing 320 basis points quarter-over-quarter.

“Based on new deliveries in the past five years and the current pipeline under construction, the U.S. Industrial market will add nearly 1 billion sq. ft. to the inventory by 2018 (8.1 percent of total inventory),” JLL researchers write. New groundbreakings are up 22% from the last quarter.

With demand outweighing supply, rents have increased for the sixth consecutive year. First-quarter U.S. average asking rents for industrial space jumped 70 basis points quarter-over-quarter to $5.25 per sq. ft.

Meanwhile, the national vacancy rate for industrial space stands at 5.3 percent, a 17-year low. About 75% of markets have seen declines in vacancy, JLL says, and the firm expects 88% of markets it tracks to be favorable for landlords.



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