Industrial Market Observations
1. The Market Continues To Tighten; The Supply Pipeline Expands
- High demand and lagging construction deliveries have led to a vacancy rate of 4.0%, with virtually no available space in numerous markets.
- Average asking rents grew 12.8% year-over-year. Rent growth was significantly higher in seaport-serving markets.
- The supply pipeline rose to nearly 550 million square feet, a new record.
2. Elevated Inflation and Rising Interest Rates Have Wide-Ranging Impacts
- Inflation is at a four-decade high, impacting every participant across the industrial spectrum from production and development, to the end-consumer. The Federal Reserve has begun a series of interest rate hikes to tame inflation.
- Amid a higher interest rate environment, continued industrial cap rate compression will likely depend on local market and property conditions.
3. Supply Chain Woes will Likely Continue through 2022
- China’s Zero-Covid policy and the war in Ukraine have serious implications for global supply chains, and lead times for production materials have lengthened to new heights.
- Domestic expansion in the manufacturing sector is on the rise to support long term resiliency, particularly in advanced manufacturing industries.
4. The American Consumer and Corporate Profits Remain Strong Despite Economic Concerns
- Demand exceeds supply in the labor market. In March 2022, there were nearly two job openings for every unemployed person.
- Consumers continue robust spending on goods: when adjusted for inflation, goods sales are up 6.6% from the trendline set pre-pandemic.
- Corporate profit margins are declining due to inflationary pressures but remain near historic heights.