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Trends in the industrial sector remained healthy in the third quarter, as continued strength in e-commerce spending and rebounding economic activity helped to support warehousing demand. U.S. GDP remains well below pre-pandemic levels, but surged at an annualized 32.9% pace in Q3, led by improvements in consumer spending. E-commerce maintained an outsized share of retail spending, as concerns over the pandemic continue to push shoppers online.

As a result, industrial availability remained unchanged at 7.6% during the quarter despite 74.1 million sq. ft. (MSF) of additional supply added to the market during the quarter.  Net absorption improved significantly to 60.1 MSF after a noticeable decline in Q2, driven by strength in demand for Class A warehousing space. The TW Rent Index also showed some improvement during the quarter, rising to $6.90 from $6.85 in the previous quarter.  

Going forward, EA expects that e-commerce activity will experience another surge in Q4 during the holiday season and will continue to maintain an elevated share of retail spending even as the economy recovers from the pandemic. Retailers’ efforts to expand their online capabilities to meet the rising demand for e-commerce should continue to stimulate activity in the industrial sector over the next several years.   

As a result, forecasts for rent and availability have all improved in the Q3 release for the remainder of 2020. Rent growth in the sector has slowed slightly from the previous year’s pace but is expected to end 2020 3.7% higher than 2019. Availability is likely to continue to gradually rise over the next several quarters but is likely to peak around 8% as new supply is added to the market. This is up slightly from the near-historic lows experienced in the sector at the end of 2018, but still signals healthy demand for space in the industrial sector.