Global property consultant CBRE is reporting this week that the average industrial taking rents rose nearly 30% in the first half of 2021 compared to the first half of 2019 in the U.S. Northeast Corridor.
The Covid-19 Pandemic created a catalyst for companies shifting towards e-commerce strategies, culminating in significant demand for logistics space and a subsequent spike in higher taking rents. E-commerce and third-party logistics (3PL) users accounted for more than half of all industrial leasing activity in H1 2021. High demand is not the only driver behind increased taking rents; supply chain constraints, delayed construction timelines, and upended budgets resulted in low availability and contributed to bidding wars as occupiers compete for suitable space across the Northeast.
Vacancy within the Northeast Corridor dropped more than 70 basis points during the first six months of 2021, settling at a record low 3.3%. Nearly 50% of current construction was pre-leased as more retailers expanded their omnichannel strategies, often outsourcing to 3PLs to reduce delivery time to consumers and to keep up with demand.
In H1 2019, overall average taking rents in the Northeast markets were $7.81 per-square- foot NNN, compared to $10.14 NNN in H1 2021. NYC saw a slight decrease in taking rents; during 2019, landlords traded moderate amounts of free rent for higher contract rents while current market fundamentals preclude these opportunities. The Central NJ and Philadelphia markets saw nearly a 50% rent growth from H1 2019 to H1 2021 as more companies targeted developable land south of Northern NJ where land is more available and rents are less expensive.
According to CBRE Research, nationally, average rent grew by 5%, year-over-year, in Q2 2021, as a comparison. The Northeast Corridor markets are among the top-performing industrial markets in the country. With e-commerce and 3PL occupier demand projected to remain high, availability is expected to remain low, and rents are likely to continue increasing through the rest of the year in the Northeast.