Commercial Real Estate
We have all heard about the soaring residential real estate prices over the past 18 months. However, commercial real estate has been ignored by headlines recently. It is no longer safe to forget about the commercial aspect of real estate though. Through the third quarter of 2021, industrial real estate shattered records across the board. Commercial real estate made history, just as its counterpart, residential real estate, also has made history. Demand for industrial real estate, as well as rental prices, both soared during the third quarter of 2021. This anomaly coincides with the re-opening of the United States economy.
Commercial Real Estate Shortage
U.S. companies began grappling and bidding for the expansion of their warehouse spaces as the economy picks up. With demand for goods at record highs, companies have began fighting over space at record levels. As e-commerce and other tenants fight for limited space, it continues to show the demand for property throughout the entire real estate industry. Not only are housing prices at record highs and accelerating at never before seen rates, industrial rents are as well.
Absorption Rates Of Commercial Property
The commercial real estate sector absorbed 160 million square feet of newly acquired leases. With 160 million square feet added to commercial leases and property in the last quarter, the amount occupied versus vacant has never been further apart. The addition of this much square footage is the highest quarterly total since the 2008 real estate market crash. With the highest absorption rate since the last financial recession, it shows that industries are looking to expand to meet the demand in place after trillions in stimulus.
With the highest quarter absorption in over a decade, it shows demand for real estate is high in every industry. Over the past twelve months, the total absorption of commercial and industrial property has netted 540 million square feet. The absorption rate takes into account the amount of vacant space as well. With occupancy swiftly outpacing vacancy rates, rental prices for commercial has sky-rocketed, just as we discussed with residential rents. With the addition of 540 million square feet, it is the first time the metric has been over 500 million square feet added in twelve months.
Commercial Real Estate Vs. Residential
Just like residential real estate homeownership rates, the commercial rates were also at record levels. The percent of vacancies has dropped to 4.7 percent of commercial and industrial square footage available. Tight commercial and residential markets are largely due to the overall demand for space to live or work. Some of the largest gains in the commercial sector were led by Amazon and other large e-commerce companies that need to ship to customers. The lagging supply chain has caused many commercial companies to begin looking for space locally in order to avoid the logjam of supplies at our ports.
With low vacancy rates, and building supplies being near all-time-highs due to inflation under the current administration, companies have to be creative. Companies such as Amazon and UPS have began to create strategic property strategies and divisions based solely on finding the best location for their warehouses. Because of the tight market, the fourth quarter is predicted to add even more square footage being occupied. Many experts predict that there will be a warehousing space shortage in the coming months.
Commercial Rental Increases
Industrial rents posted quarterly highs of $7.11 per square foot for rent. This is up from $6.98 per square footage just three months prior. Over a third of the markets that were researched, including Louisville, Kentucky, saw double-digit rent increases. This is similar to the residential rent price increases that we have seen over the past twelve months. With space limited and more expensive, this has led to a record amount of square footage under construction for commercial use. There is over 630 million square feet under construction for the commercial sector over the past twelve month, more than double the average from pre-pandemic. Check out commercial property in Louisville, Kentucky by visiting our listing website.