High demand and lack of space seems to be catching up to the red-hot industrial market, according to the latest results of the Society of Industrial and Office Realtors® (SIOR) Snapshot Sentiment Report, which provides feedback from hundreds of member-brokers on the performance of transactions during Q1 2022, along with their outlook for the next six months.
While still thriving, a growing strain on the market is appearing as low vacancy and rising costs are leaving many industrial specialists searching for more opportunities. With record land prices, construction pricing even higher, and limited supplies, making use of existing space in creative ways is becoming a necessary option. SIORs reported a 25% decrease in leasing activity in the first quarter, citing supply issues. Ninety-three percent of SIORs reported little to no vacancy in their markets.
In contrast, the office sector continues its rebound. SIOR office specialists’ confidence rose, as did the number of on-schedule transactions. The measured return to work seems to be influencing demand, as office vacancy and the amount of subleasing space have both decreased since last quarter.
Regardless of sector, one thing holds true for both: creativity and flexibility will carry you further in today’s marketplace.
“There is a very limited amount of supply regarding industrial product types,” says a Kentucky-based SIOR industrial broker. “Tenants looking for space have to employ a broker who will call on off-market properties and explore all options.”
“Spec suites are all the rage,” notes one Minnesota SIOR office broker. “Tenants are reworking their footprints which in many cases is a downsize as more folks are remote 40% of the time. If you don’t have a spec suite you may not be on a tour list.”
While increased gas prices have impacted commutes and uncertainty in the marketplace continues, SIORs remain prepared and fluid with their responses, which is evident in the steady amount of deals still taking place. Eighty-four percent of industrial transactions were on-schedule in Q1, and 76% of office transactions remained on-schedule.
Pricing was the source of many SIOR’s challenges, with 94% of industrial specialists and nearly half of SIOR office specialists reporting high asking rents. “Vacancy levels are shrinking, giving tenants and buyers fewer choices with higher rents,” notes a Maryland-based industrial SIOR. “There are rents no one in our market has ever seen – above $100/SF on newest Class A,” states a Florida-based office SIOR.
In terms of what is working well, SIORs point to distribution and manufacturing, move-in ready and build-to-suit spaces, and investment properties as being bright spots.
“SIORs are the top of their field, which makes them well-equipped to embrace change and be agile in an ever-changing marketplace,” says SIOR Chief Executive Officer Robert Thornburgh, SIOR. “What is clear from the feedback we are receiving is the brokers expertise is more valuable than ever to navigate this dynamic landscape. Clients need the very best guidance and local market insight to understand their options, and SIORs are delivering that industry leading service.”