U.S. Industrial Forecast: Q4 2020

Feb 12, 2021, 14:27 PM by Ibrahiim Bayaan

Trends in the industrial sector remained strong throughout 2020, as a surge in e-commerce spending helped to support warehousing demand during the COVID-19 pandemic. The broader macroeconomy continues to recover after activity collapsed in Q2 2020, but U.S. GDP remains below pre-pandemic levels. However, e-commerce spending increased over 30% throughout the year, gaining a significant share in the retail sector as concerns over the pandemic pushed shoppers online.

As businesses looked to expand their online capabilities industrial availability remained near historic lows, falling to 7.4% to round out the year.  Net absorption surged in Q4, reaching a 22-year high of 109.9 million sq. ft. (MSF) during the quarter, driven by record demand for Class A warehousing space. Rent growth finished the year at 3.3%, up from 2.4% in 2019.  

Going forward, EA expects that e-commerce growth will moderate significantly in 2021 as vaccine deployment accelerates and consumers are better able to return to physical locations. This should be partially offset by rebounding activity in the broader macroeconomy. As a result, EA expects that availability should gradually rise throughout the year but remain near historical lows at 7.8% despite significant increases in supply. Rent growth in the sector should remain above trend throughout the year, finishing the year at 4.2%.

Beyond this year, EA expects that e-commerce will remain a larger portion of overall retail than pre-pandemic trends would have suggested and will continue to gain additional share in the retail space steadily over the next several years. As a result, demand for industrial space should remain strong, keeping rent growth high and availability low relative to historical norms.   

EA Asking Rents

The Q4 industrial forecasts incorporate the new EA Asking Rent series for forecasting rents at the market and submarket level, developed in partnership with our co-founder and MIT economist Bill Wheaton.

As a result, historical rent values at both the market and submarket level have been changed in the Q4 release, altering the historic rent performance in some markets/submarkets and in turn affecting the way we view these markets/submarkets when we forecast. Our research shows that the new EA Asking Rent series better reflects rent movements, so this switch should provide a more accurate outlook for the industrial sector.

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Deconstructing CRE

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