The industrial real estate asset category has been, undoubtedly, playing a crucial role for the past few years in the growing e-commerce market, transforming how consumers shop and receive their goods. Moreover, the companies are making immense efforts to improve supply-chain efficiencies, propelling demand for logistics infrastructure and efficient distribution networks.
This brings our focus on industrial landlords like Prologis PLD, Rexford Industrial Realty, Inc. REXR, First Industrial Realty Trust, Inc. FR and EastGroup Properties, Inc. EGP that are poised to benefit from this favorable environment. And with the Q2 reporting season around the corner, it's time to check how they are placed ahead of their earnings.
What is encouraging is that despite the economic headwinds in the second quarter, demand in the U.S. industrial market outpaced supply for the seventh straight quarter, per a report from Cushman & Wakefield (CWK). There was a net absorption of 120.4 million square feet (msf) of space in the June-end quarter and 236.3 msf through the first half of the year. Moreover, new leasing activity touched 408.2 msf in the first half of the year.
The U.S. industrial vacancy rate reached a new low of 3.1% in the April-June period. This marks a decline of 10 basis points (bps) quarter over quarter and 120 bps year over year. Moreover, it represents the second straight quarter when every region in the United States reported vacancy below 4%, with the lowest in the West region at only 2.4%.
Continued tight market conditions and solid demand supported rent growth of 19% year on year during the June-end quarter. Asking rent of $8.36 per square foot during the quarter under discussion turned out to be the first quarter to surpass the $8.00 psf mark in 20+ years of tracking rental data, the CWK report noted.
Resilience is essential to the future supply chain and so, over the long term, apart from the fast adoption of e-commerce, logistics real estate is expected to benefit from a likely increase in inventory levels.
However, with the asset category being attractive, there is a development boom in a number of markets. Per the CWK report, the new supply aggregated 193.8 msf in the first half of the year, compared with 151.9 msf reported at midyear 2021, denoting a 27.5% increase. Also, the industrial construction pipeline reached a record 699 msf in the second quarter of 2022. The high supply is likely to have intensified competition during the June-end quarter.
