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Industrial Development Finally Catches Up With Tenant Demand

By Adrian Ponsen
CoStar Analytics, August 18, 2022 / 3:23 P.M.

Last year, developers completed a bumper crop of new industrial property tallying 475 million square feet across the U.S. covering a combined land area the size of Boston. This building boom resulted in the most new industrial space completed in a single year in more than two decades.

It’s well into 2022, and developers have continued to accelerate industrial construction levels to the point where the pace has finally caught up with tenant demand, just as the economic backdrop becomes increasingly unstable.

For two consecutive quarters, the U.S. gross domestic product has been declining. Amazon, North America’s largest industrial user, has been slowing its distribution network expansion. Walmart and Target cut their profit forecasts this summer as inflation weighed on both their business expenses and consumer finances.

So far, however, the inflationary environment hasn’t stopped most major retailers, third-party distributors and manufacturers from continuing to expand rapidly and lease space in the wave of newly built industrial properties wrapping up construction.

Even as Amazon pumps the brakes, other major retail tenants including Dollar General, Williams Sonoma, Puma and Bed Bath & Beyond have stepped up in 2022 to prelease proposed or under-distribution centers larger than 1 million square feet. In a nod to just how high a priority growing distribution capacity remains for many major retailers, Target and Walmart both recently announced plans to open multiple new distribution centers across the U.S. within weeks of lowering their profits forecasts.

As a result, leasing within under-construction or proposed U.S. industrial projects reached an all-time high during the second quarter of 2022, tallying 70.8 million square feet, an increase of roughly 20% from year-ago levels recorded during the second quarter of 2021.

Industrial developers with projects under construction can also take comfort in knowing that only 9% of the 475 million square feet worth of new projects that completed in 2021 is still available for lease. Previous rounds of industrial projects that were built in 2018, 2019 and 2020 typically had availability rates twice as high when they were eight months out from finishing construction as properties completed in 2021.

Since plummeting through 2021, the amount of available space in industrial projects built within the past five years has begun to stabilize and even move up slightly in 2022. This is a sign that completions of new distribution center developments are finally beginning to keep pace with tenant demand and could easily begin to push availability up as larger numbers of industrial developments are completed in the months ahead.

This should not be an immediate concern for developers and industrial landlords given how tight the industrial market is today. It would take several months of rising space availability, at least, before industrial space tenants would begin to feel significantly increased bargaining power in lease negotiations.

As long as the U.S. economy can avoid slipping into a painful recession, industrial projects on track to finish construction during the remainder of 2022 and early 2023 should continue to benefit from a market with limited available space and very high levels of leasing.

Giving and Getting, Networking in Your Community.

Last night I attended a chamber of commerce new member welcome “mixer”. It was pretty well attended for our smaller community. I noticed that there were a lot of faces that I did not recognize and that was both a plus and a minus. I reconnected with someone I had known for a long time and had not seen in a while and made a promise to have lunch, I am going to call him today. Secondly, I was able to do a 30 second elevator pitch. I spoke briefly about my company but also about the Kiwanis Club I am a member of. The Kiwanis Club is a great organization and I have been associated with Kiwanis since Circle K while I attended PCC. The mentorship that was provided by that club was pretty awesome.

If you would like to get to know your community, I suggest you join a chamber of commerce and a service club like Kiwanis. You will discover that you will be connected to the people that actively participate in your community. You will also be granted the opportunity to give back to your community via the fundraising, donating and public service that your club will participate in. Working with fellow community members will also forge friendships with like minded people and give you another social outlet.

These groups are also a great source of local information, if you want to know what is happening in your community, there is probably a program that will be presented at your club that will keep you informed. Need advice, there will probably be someone in your group that can lend you that advice and has been in your same situation. When you are active in your community as a business person it does get noticed and it can help your business.

You are going to have lunch or breakfast anyway, so why not have it with a great bunch of friends and network your way into new opportunities for fun, volunteering, and business. We do business with people that we like, make friends in the organizations and be there for the right reasons and karma will take care of you. Don’t be afraid to ask though, sometimes Karma can take its sweet time. Ask for consideration, people that are givers also get (a take on the slogan of the networking group BNI).

For information on the Monrovia Kiwanis Club, you can call me, Alfredo Mejia and I would love to take you to one of our meetings and buy you lunch. Call me at 626-841-0599 or email me at alfredo@cibare.com.