According to a report by CompStak that examines eight major US markets, the industrial real estate sector is being shaped by a complex interplay of factors, from the continued rise of e-commerce to shifting global trade dynamics.
At the heart of the report lies the persistent growth of e-commerce, which has reached near-record highs as a percentage of total retail sales. This upward trajectory, spanning nine consecutive months, underscores the enduring demand for industrial logistics space. As consumers increasingly turn to online shopping, businesses are scrambling to secure warehouses and distribution centers to meet the growing need for swift and efficient delivery.
A significant uptick in port activity mirrors the surge in e-commerce. Major U.S. ports, including Long Beach, Los Angeles, and New York/New Jersey, have experienced substantial year-over-year growth in container volumes. This surge in port activity serves as a barometer for the logistics sector’s vitality, signaling robust demand for industrial real estate in key transportation hubs.
Against this growth backdrop, though, the industrial real estate market is navigating choppy waters. The transition to a new administration has sparked widespread discussions about potential tariffs, introducing an element of uncertainty into the market. CompStak suggests that the mere possibility of tariffs could trigger a short-term boost in U.S. imports as companies rush to stockpile goods, potentially driving up warehouse demand in the near future.
Adding another layer of complexity to the market dynamics is the looming expiration of a significant portion of industrial leases. With over a quarter of leases set to expire by 2026, many tenants find themselves in a precarious position. The disparity between expiring lease rates and current market rates is stark, with some areas seeing differences of up to seventy-five percent. This gap sets the stage for potentially substantial rent hikes, particularly in major markets where demand remains strong.
However, the market is not without its challenges. After reaching a peak in late 2023, effective rents for bulk industrial transactions have experienced a slight decline, outpacing the decrease seen in non-bulk transactions. This trend points to rising concessions and more flexible negotiations in a softening industrial market. Yet, there are signs of stabilization, with rent declines showing indications of leveling off in recent months.
In response to these market conditions, both landlords and tenants are adapting their strategies. Lease terms have notably shortened, particularly for bulk transactions, reflecting a desire for greater flexibility in an uncertain environment. Simultaneously, free rent periods have reached their highest levels in years, further underscoring the shift towards tenant-friendly terms in a softening market.
Despite these challenges, certain sectors continue to drive significant leasing activity. Logistics and food & beverage companies have emerged as the top players in industrial leases, with firms like Western Post and Mondelez International securing high-value deals across multiple markets.
Source:https://www.globest.com/2024/12/13/trends-influencing-industrial-in-2025/
