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Supply chain disruptions (port backlogs, labor shortages, material shortages, product inventory, etc.) have nudged firms to lease additional industrial space to be utilized as storage space in an attempt to reduce reliance on supplier inventory.
While having faced numerous headwinds throughout 2021, the industrial sector saw more than 990 million square feet (msf) of industrial leasing activity—an all-time high and up 7% from the 925 msf reported in 2020 as online shopping continues to be a primary driver of demand for logistics properties, which hold the majority share of industrial leasing by sf (82%).
Of the 390 markets covered by CoStar®, 41 markets saw more than 10 msf of total leasing activity and 23 markets saw over 15 msf of total leasing activity by the end of 2021. Additionally, of the 390 markets covered by CoStar and those with leasing data in both 2020 and 2021, more than 58% of the tracked U.S. markets posted year-over-year increases in annual total leasing activity. The top metro leaders with the highest difference in total industrial leasing activity square footage from 2020 to 2021 were in metro areas such as Chicago (+11.7 msf), Houston (+10.9 msf), Columbus (+8.5 msf), Minneapolis (+7.3 msf), Charlotte (+6.6 msf), Phoenix (+6.1 msf), Atlanta (+5.8 msf), Louisville (+5.4 msf), Denver (+5.2 msf) and Dallas-Fort Worth (+5.0 msf).
On a quarterly basis, there are indications that industrial leasing activity across all categories peaked and has now plateaued, while remaining at very high levels, including logistic properties. Industrial leasing activity reached a record high in Q2 2021 (274 msf) while declining thereafter to 254 msf in Q3 2021 and to 227 msf in Q4 2021, a low for 2021.
Throughout the second half of 2021, U.S. industrial leasing has sustained the higher levels recorded in Q2 2021, but has not increased any further beyond that figure. The increase in e-commerce, labor shortages, and consumer expectations in regard to the increasingly expedited delivery of goods, continue to put pressure on the supply chain. Accordingly, those industries associated with maintaining the supply chain and e-commerce continue to see increases in demand. In Q4 2021, industrial logistic properties accounted for 82% of total industrial leasing volume, a slight bump up from Q3 2021 and similar to the share on an annual basis. The share of total leasing volume for both flex and specialized space were 8% and 9% respectively.
At the same time, the total square footage of new industrial space under construction (512 msf in Q4 2021) is 49% higher than that of the same period in 2020 as occupiers seek additional space for increasing inventory requirements provided the even stronger consumer demand. This need for additional product onshore amid supply chain disruptions has induced additional demand for logistic space. But, as pandemic-related supply chain disruptions ease, supply in the pipeline will begin to deliver at a quicker rate and may begin to outpace demand. Preliminary data as of February 4, 2022, provides us with a glimpse of this as industrial deliveries, 128 msf, outpace demand by 19 msf. Nevertheless, strong consumer demand and industrial inventory signals a positive year ahead for the industrial property sector.
