Colliers International Group Inc. (Nasdaq:CIGI) (TSX:CIG) has released its 2015 Q3 U.S. Industrial Market Outlook, which identifies sustained strength in the sector with record absorption and rental rate increases despite mixed macro-economic signals. Colliers’ analysis reveals that drivers for the U.S. industrial real estate market are favorable overall, though some warning signs should be noted for potential slowing. 

“The U.S. economy is generally outperforming most advanced economies, though it’s growing slower than many would like,” said Dwight Hotchkiss, National Director, Industrial | USA for Colliers International. “This is due in part to the prolonged weakness for oil, gas and other minerals, which continues to strain commodity-dependent metros such as Houston. This also comes during a time when the sector has over 181 million square feet under construction, the highest level we’ve seen in the last 10 years.” 

Of the 70 U.S. markets surveyed by Colliers, 63 percent report anticipated tightening in vacancy rates, and 66 percent expect industrial rents to continue to rise in upcoming quarters.

Key takeaways from this report include: 

  • Vacancies in the U.S. industrial market declining. Industrial demand rose for the 22nd straight quarter, with vacancy rates steadily declining since peaking at 11.2 percent in Q1 2010 to reach 6.6 percent this quarter. 
  • U.S. industrial demand remains positive spurring construction. Net absorption totaled 59.1 million square feet (MSF) this quarter. Robust occupier demand and the need for modern industrial space continue to drive industrial construction. Much of the more-than-41 MSF of space added to the industrial base was in built-to-suit projects.
  • Average asking rents increasing. Asking rents now stand at $5.28 PSF per year and have been steadily rising over the past 16 quarters since bottoming out at $4.53 PSF in Q3 2011. They are, however, still below the peak of $5.63 reached in Q2 2008. 
  • Foreign and domestic buyers remain bullish. This year has seen record acquisition on a wholesale level in the entry of Global Logistics Properties and the sale of KTR to Prologis. Year to date, investment activity in U.S. industrial assets is up 43 percent over 2014.