The recent changes in economic activity and business trends have changed the future outlook for several industries. The commercial real estate industry is one of the most affected, and experts are barely keeping up with the latest trends. As commercial real estate brokers, we are most intrigued by the sudden rise in demand for industrial spaces.

Although we had anticipated the increase as the economy recovered, the actual trends have broken our estimation. While we are examining data, investors should know the current trends so that they may invest accordingly.

This blog will highlight the current trends in industry vacancy rates and attempt to explain why the changes are happening.

What Is Industrial Vacancy?

Industry vacancy is unutilized per unit of floor space meant to be used for industrial purposes. The area is typically used for manufacturing, assembly, warehousing, or similar purposes and remained stable until the second quarter of 2019.

There are three classes for industrial real estate, A, B, and C, which define how premium the property is (with A being the most premium).

How Have the Industrial Vacancy Rates Changed Recently?

Following are the primary ways in which the industrial vacancy rates have changed:

1. Decrease in Industrial Vacancy Rates

As mentioned above, industrial vacancy rates had a predictable trend until the second quarter of 2019. It suddenly dropped from 5.8% to 5% by the year’s third quarter and remained stable for another two quarters. It then increased to 5.3% in the second quarter of 2020 due to COVID-19 and has since been declining.

The last rate was recorded at 4.1% at the end of the first quarter of 2022, and there is a chance it will remain stable or decline further.

The decline in industrial vacancy rates is positive for commercial real estate. It signifies that businesses are occupying more industrial space for warehousing, manufacturing, assembly, etc.

2. Increase in Rent Rates

The sudden increase in demand has also affected the overall rental market for the space. Rent rates for industrial space increased by 9.5% to reach $7.39 per square foot in January 2022. This increase shows that industrial properties are lucrative for commercial real estate investors.

Therefore, it is best to include them in your portfolio to benefit from the higher demand.

Potential Reasons for the Change in Trends

The most likely reason for the sudden increase in demand is the shift towards e-commerce. E-commerce has led businesses to use more warehouses to stock products to cater to market needs. The pandemic further boosted the consumer shift to e-commerce shopping, which helped break expert estimates of digitization adoption.

Furthermore, the pandemic also affected manufacturing and supply chains, creating supply and demand gaps in the market. Several businesses from diverse industries have, thus, increased manufacturing and assembly capacities to close such market gaps.

Final Thoughts

In short, industrial vacancy rates have declined drastically in the past three years. The new trend is an opportunity for investors to come forward and include relevant properties in their portfolios.

Don’t hesitate to contact the CHRE team to invest in commercial real estate in Rio Grande Valley. We have extensive experience in the region and will help you find the best options.