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Strong total returns in the industrial sector over the past five years have helped fuel returns across the broader CRE market. Driven primarily by extraordinary growth in e-commerce and the related demand for distribution and logistics centers, retail’s loss has been industrial’s gain. The three-year period from 2016 through 2018 was the sector’s strongest period of demand (based on net absorption) since at least 1999.1

Over a longer time frame, demand for industrial CRE also has held firm. Since 2010, nearly 1 billion square feet of new industrial space has been built in the U.S., nearly all of which has been absorbed as the vacancy rate for industrial real estate has moved steadily lower.2 Vacancies have declined from as high as approximately 10% in 2010 to a post-2000 low of 4.8% in Q1 2019.1 Vacancies are under their prior cycle lows (2002–2007) across nearly all major markets, yet the Los Angeles and Orange County, CA, metro areas stand out, both with vacancy rates below 2%.3

Industrial asking rents (price per square foot) have risen approximately 20% since 2015, though they have moderated a bit in recent quarters.1 Slowing manufacturing activity in the U.S. and globally and rising trade tensions have the potential to slow industrial activity. We see few signs of a notable slowdown as of yet, though declines in the ISM Manufacturing Index, a traditional bellwether of industrial activity, bears monitoring.4

1 Reis, as of March 31, 2019.
2 Wells Fargo Securities, Economic Group, Q4 CRE Chartbook: Construction Outlook, March 2019.
3 Real Capital Analytics, as of May 31, 2019.
4 Bloomberg, as of May 31, 2019.

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