Despite the growing cost of credit, strong fundamentals kept capital flowing into the U.S. industrial real estate sector during the first three months of 2022, according to recent research from JLL.
Industrial transaction volume during the first quarter of this year was $33 billion, the real estate services company reported. That’s up from $19 billion in Q1 2021 and is the second-highest volume on record for any first quarter, trailing only the $36 billion in transactions posted during Q1 2020.
A market flush with capital and clamoring for more space due to the ongoing e-commerce boom has seen demand stay hot, with tenants absorbing more than 110.8 million square feet in the first quarter. That’s the third-highest net-absorption total on record for any quarter. Meanwhile, the vacancy rate from January through March was 3.4%, marking a decrease for the sixth straight quarter. Vacancies fell even with a healthy influx of new deliveries, as 90 million square feet of new inventory entered the market during the first three months of this year.
The competitive environment helped drive rents further upward, JLL reported, as average asking rents rose to $7.62 per square foot. Industrial rents have increased by 16% since Q1 2021 and metro areas with easy access to ports continue to log the strongest growth rates. Los Angeles led the way in the first quarter, up 24.6% annually, followed by Orange County, California (up 19.7%); Greensboro/Winston-Salem, North Carolina (up 17.9%); California’s Inland Empire (up 16.5%); and Long Island, New York (up 16.3%).
Leasing volume grew 17% year over year, with warehousing, distribution and third-party logistics (3PL) tenants continuing to lead the charge. With 14% of total leased square footage during the first quarter, 3PL companies were the most active during this time. Logistics and distribution companies, along with construction material and building fixture providers, were each responsible for 12% of leased square footage during the quarter.
The increase in leasing volume suggests even more occupancy gains in the quarters ahead, heightening the need for additional inventory to be delivered. Currently, there is 531 million square feet of industrial space under construction, representing 3.7% of existing nationwide inventory.