Increased Demand for Industrial Space Driving up Rental Rates, CBRE Report

Coastal Markets Dominate Year-Over-Year Base Rent Growth. Credit: CBRE Research.

According to a new report from CBRE, tight vacancies and high demand are sparking bidding wars for industrial space across the U.S., driving both asking and taking rent growth to new highs.

Asking rents increased a record 8.3% year-over-year in Q4 2020 and 7.1% in Q1 2021—well above the five-year annual growth average of 6.8%. Asking rents are the listed rates that landlords are offering for space.

Meanwhile, “taking rents”—first-year base rents on industrial leases of 12 months or more—increased 9.7% year-over-year for the first five months of 2021. Bulk warehouses accounted for the biggest increases in taking rents. Specifically, leases for warehouses of 500,000 sq. ft. or more surged 13.2%, while leases for facilities between 100,000 sq. ft. and 499,999 sq. ft. rose 11.6%.

“Occupiers are willing to pay more than landlords are asking as they struggle to find available space, particularly in the bulk warehouse category,” said John Morris, executive managing director and leader of CBRE’s Americas Industrial & Logistics business. “For many occupiers looking to expand or simply renew, the sticker shock for space has become an incredible challenge.”

Base rents for Denver industrial space climbed 9.6% year-over-year, the thirteenth highest increase in the nation.

“Denver industrial rent growth continues at a strong pace. Denver rent growth in the bulk space segment has ticked up recently, and is largely driven by new construction and increased demand overall. Tenant demand has undoubtably stepped up in Denver as e-commerce and other users commit to having larger distribution centers in the greater Denver market to service our growing population base,” said Jessica Ostermick, director, CBRE.

The trend is playing out across the country, but particularly in coastal markets and high population centers. Northern New Jersey and Inland Empire led the nation with 33.3% and 24.1% base-rent increases, respectively, through May. Both markets have incredibly low vacancy rates at 2.2% and 1.5%, respectively.

To download the report, click here.

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