Long-Term Picture for Industrial Space Looking Good; Short Term Not So Certain, Says New Report10/5/2023 ![]() The supply of industrial property, after an overall construction increase in the last several years, may well be looking at a decline in the next two years. So suggests a report just released by the Scottsdale-based Yardi Matrix, a premiere commercial real estate data firm. In its National Report: Industrial Rent, Occupancy and Supply Recap, Yardi Matrix notes that just "204.3 million square feet of industrial space has been started so far in 2023." That's a significant decline from the 614.1 million recorded last year and the 586 million square feet seen in 2021. Reasons for the slowdown are many but include the fact that "demand for industrial space normalized from the significant levels seen in previous years." At the same time, "interest rate hikes and stricter lending standards have made construction financing more expensive and harder to come by." Meanwhile, spec development has become a riskier proposition, continues the report, "due to inflation hitting material and labor costs, as well as general economic uncertainty." Such factors should be enough to cloud the picture for any future industrial space work, but the Yardi Matrix report instead predicts "the long-term outlook for industrial development remains positive." Fueling this positive forecast, the report notes that logistics demand has normalized, while e-commerce sales trends are currently conforming to a "pre-pandemic trend line." This means that a large number of firms may subsequently move from a "just in-time inventory management to just-in-case, which reduces exposure to supplier delays, but requires more warehouse space." Even more, in keeping with the many business media reports charting the decline of actual retail space, "online sales require more logistics space than brick and mortar because distribution networks need to be larger and decentralized to deliver goods quickly." The report makes note of the "massive multi-billion-dollar semiconductor and electric vehicle facilities" that are being built across the country, driven in large part by "government incentives and geopolitical trends." This means an increased presence in such places as Phoenix and Austin, among other cities, both to support semiconductor and electric vehicle facilities. Competition for such space, predicts the report, will increase after "deliveries slow in 2024 and 2025." "We anticipate," continues the report, "that starts will pick up again in 2026." By Garry Boulard
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