Is there too much Industrial Supply Coming Online in 2023?

Over the past 12 months, the industrial asset class has experienced significant growth in the United States, driven by a range of factors including the reshoring trend, increased demand for e-commerce and logistics facilities, and advances in technology.

According to industry data, the demand for industrial real estate in the United States has surged over the past year, with vacancy rates reaching historic lows of 4% nationally. This is backed by a 6.9% YoY increase in rents. (According to Yardi Matrix) This has been particularly pronounced in locations that are well-positioned to support e-commerce and logistics activities, as companies seek to store and distribute goods more efficiently and closer to consumers.

In addition, the reshoring trend has continued to gain momentum, with a growing number of companies bringing their manufacturing and production activities back to the United States. This has led to increased demand for industrial properties that can support these activities, particularly in locations that have access to a skilled workforce.

The growth of the industrial asset class has also been supported by advances in technology, which have transformed supply chain management and made it easier for companies to operate more efficiently. For example, the use of automation and robotics in manufacturing and logistics facilities has increased, leading to higher productivity and lower operating costs.

The average sale price of an industrial property in Q4 of 2022 was $134 per square foot, a 76% increase from Q1 of 2019, a 25.3% annual increase. (According to Yardi Matrix)

Some experts argue that the new supply slated for 2023 outweighs the demand, with 691 million square feet currently under construction, and another 706.6 million square feet are in the planning. However, it is important to note that the long term macro-economic trends still show that 80% of the top markets in the US have a lease spread– the difference between a new lease signed over the last 6 months and the previous rate for the same space– of 20% or more.

Overall, the growth of the industrial asset class over the past 12 months has created attractive investment opportunities for investors who are able to identify properties that are well-positioned to support these trends. While there may be challenges to address in order to fully capitalize on these opportunities, the outlook for the industrial asset class remains positive, driven by strong demand and favorable long-term trends.

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