- Despite four years of continuous growth, the U.S. industrial real estate market has not yet fully recovered from the depths of the recession. With demand again projected to outpace supply, the market is poised for yet another strong year in 2015, marked by declining availability and rising rents.
New supply levels will rise, but increasing construction costs could dampen development
- Construction was virtually non-existent in the aftermath of the recession and has only gradually recovered in recent years. With strong demand for modern distribution space fueling development activity over the past 12-18 months, total new completions should finally reach long-term averages in 2015. However, rapidly rising construction costs could temper construction growth in the mid to long term. The degree to which these costs continue to rise may be affected by how quickly oil prices rebound from their six-year low.
Technology, automation (not reshoring) will spur demand for manufacturing space
- U.S. manufacturing is on the rise, with production outputs now at all-time highs. However, these gains are due largely to increases in technology and automation and are not a result of elevated employment or reshoring (manufacturing that was brought back to the U.S. from overseas). The increase in outputs has a stimulative effect on industrial demand in key manufacturing and supply chain markets.
Light industrial poised for strong growth in 2015
Light industrial facilities (properties smaller than 200,000 sq. ft.) may be the best bet for growth in 2015. These facilities have historically outperformed larger distribution centers in terms of rental growth, but have lagged behind in the current cycle. With demand rising for facilities in smaller infill locations in land- and supply-constrained urban areas, light industrial fundamentals will see a boost in 2015.