Q1 2020 Industrial First Glance

Analysis by Barbara Byrne Denham

CALM BEFORE THE STORM

The effect of COVID-19 has yet to show in the industrial statistics for the first quarter of 2020. However, the Moody’s Analytics REIS protracted slump scenario, which represents a worst-case situation in which GDP contracts by more than 30% (annualized) in the second quarter, forecasts negative net absorption of 200 million square feet for the warehouse/distribution sector in 2020 as well as another negative net absorption of approximately 70 million SF in 2021. This will push the vacancy rate up to 12.8% at the end of 2021. Average asking rents and average effective rents are currently expected to decline 3.5% and 6.0%, respectively, by the end of 2021.

 

Industrial Effective Rent Growth

Q1 2020 Industrial First Glance Report from Moody's Analytics REIS

Source: Moody’s Analytics REIS

 

Most metros saw positive (effective) rent growth in the quarter, led by Fort Worth, Memphis, Miami, Charlotte and Orlando where the effective rents grew 0.8% to 1.2% in the quarter. Two metros saw an effective rent decline in the quarter: Suburban Maryland (-0.3%) and Pittsburgh (-0.2%). For the year, metros with the highest rent growth were mostly port cities: Orlando, Sacramento, Miami, Fort Worth and San Diego with growth rates of 3.2% to 4.1% for the year. These metros will see a sharp drop in cargo and activity in the second quarter but it is too early to say how deeply the drop in trade will impact occupancy and rent declines.

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Barbara Byrne Denham is a Senior Economist in the research and economics department at REIS, the team responsible for the firm’s market forecasting, valuation, and portfolio analytics services. Throughout her 20-year career, Barbara has written a number of white papers on the commercial real estate market.

 

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