Strong Demand Leads To Record Low Vacancy
Key Takeaways:
- The vacancy rate fell 50 basis points from the previous quarter to end at 2.6%. This is the lowest rate on record for this region, for now. Demand continues to out pace supply with below average construction completions again this quarter.
- Construction completions totaled only 2,375,600 square feet. This is less than half the typical 5.2 million square feet added to the base every quarter for the past five years. The pace of construction completions has slowed to a trickle as construction is taking longer to complete.
- Industrial asking rents in the Inland Empire increased $0.02 over the quarter to stand at $0.70 per square foot (PSF) triple net (NNN). Rents have increased nearly 15% in the past twelve months as demand continues to out pace supply. Landlords continue to be bullish on rates as vacancy rates continue to tighten.
Outlook:
There is roughly 13 million square feet set to be delivered in the next six to eight months which may lead to increases in the vacancy rate. 40% of this amount is already pre-leased, leading to positive net absorption once it is completed.
Despite the potential for rising vacancy rates in future quarters, rents are expected to remain high as industrial demand, especially for larger and more modern industrial space, remains scarce.
Headwinds such as a nationwide decline in manufacturing, a global economic slowdown coupled with central bank intervention and threats of an ongoing trade war could eventually derail a booming industrial market seeing record-low vacancy rates and record-high asking rates.
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