Q3 2022
Industrial Sector Continues to Expand its Footprint
The footprint for industrial space continues to grow across the United States as demand for the product type remains high and consumer spending remains strong even amongst the current inflationary environment. In 2021, developers throughout the country completed new industrial projects totaling 475 million square feet, covering a combined land area the size of Boston. This boom in construction, resulted in the highest volume of new industrial space completed in a single year in more than 20 years. As we are nearing the fourth quarter of 2022, developers have continued to accelerate industrial construction levels to the point where the pace is finally catching up with tenant demand.

While global shipping and other transportation and manufacturing delays have eased considerably than what was seen a year ago, supply chain issues are still prevalent. Over the past year, corporate America has been attempting to sort out strained supply chains and redeploy personnel and real estate, which includes bringing manufacturing and warehousing closer to distribution centers. Multiple companies across various industries are looking to “onshore” production and distribution facilities from overseas regions still struggling from the pandemic.

Large retailers, such as Walmart, Target, Dollar General and Bed Bath & Beyond, are placing a high priority on growing their distribution capacity to keep up with consumer demands. As a result, leasing within under-construction or proposed industrial projects reached an all-time high during Q2 of 2022, with 70.8 million square feet being leased, an increase of roughly 20% from Q2 2021. Of the 475 million square feet of industrial space completed in 2021, only 9% remains available for lease. Industrial projects that were constructed in 2018, 2019 and 2020, typically had availability rates twice as high when they were eight months out from completion, as compared to projects completed in 2021. Many properties built in 2021, have lower availability rates partly due to delays in securing construction materials, resulting in longer completion timelines, allowing developers more time to secure tenants.

Sources: CoStar News, BizWest
Fort Collins/Loveland/
Larimer County

The Fort Collins/Loveland market is comprised of 25 million square feet of industrial/flex space. Over the past 12 months, there has been 653,000 square feet of net absorption, up 143.6% from one year ago. There is currently 602,000 square feet under construction which is an 11.7% decrease from the prior period and 655,000 square feet has been delivered over the past year. The current vacancy rate sits at 3.75% or 937,000 square feet, which is down from 4.06% in Q3 2021; the lowest vacancy rate seen in the market was Q1 2020 at 2.66%. Rent growth remains strong at an annual increase of 7.3%, with the highest market rent ever seen at $11.68 per square foot. There has been 1.2 million square feet leased in the market since Q3 2021.

Over the last year, the sales volume has been $230 million, with an average market sale price of $158 per square foot, up 9% from the prior period, which was previously $145 per square foot. Market cap rates are sitting at 6.5%, up from the lowest cap rate seen of 6.41% in Q3 2021.

Sources: CoStar
Greeley/Weld County

There is 27.6 million square feet of industrial/flex space in the Greeley/Weld County market, exceeding the Fort Collins/Loveland market. Construction is up 43% from the prior period with 1.3 million square feet currently under construction and 417,000 square feet delivered over the past year. The 12-month net absorption is down 20.3% at 399,000 square feet. The vacancy rate is currently 3.8% or 1.1 million square feet, which is down 0.9% from Q3 2021 and the availability rate is sitting at 7%. Market rents are at an all time high of $12.03 per square foot, up 5.7% from one year ago. There has been 846,000 square feet leased in the past 12 months, with a property sitting vacant for an average of 1.7 months.

The sales volume over the last year has exceeded the Fort Collins/Loveland market at $289 million, with an average market sale price of $144 per square foot; an increase of 9.7% from Q3 2021. Market cap rates have increased slightly from the prior period to 6.8%.

Sources: CoStar
Favorable Landlord's Market is Here to Stay

As the amount of available industrial space plummeted through 2021, the available space in industrial projects built within the past five years has begun to stabilize and even move up in 2022. This is a good indicator that the completion of new industrial developments are finally beginning to keep pace with tenant demand and the nation will see the availability rate increase as more projects are completed throughout the remainder of 2022 and into 2023. The industrial market will remain tight in the months ahead, continuing to favor developers and landlords. For tenants to have increased bargaining power in lease negotiations, it would take multiple months of increasing space availability in the sector. As long as the U.S. economy can avoid falling into a recession, projects on track to finish construction in 2022 and early 2023, should continue to benefit from a market with limited space available and high levels of leasing.

Source: CoStar News
Realtec is here to help navigate the changing market
CoStar Market Reports - Larimer and Weld County
Q3 2022
This quarterly publication is authored by Jamie Globelnik of Realtec Loveland