Firms that need to purchase new land for industrial purposes are finding the options are few and expensive. This has led many companies to take drastic action that would have been unthinkable even a couple of years ago, including purchasing lots larger than currently needed and sub-letting the space until the firm is ready to use it. So, what effects has this tight industrial market brought to real estate.
Effects of a Tight Industrial Market
Vacancy Rates Hit Record Lows
Record-low vacancy rates are a huge problem. At the end of 2021, industrial vacancy rates fell to a record low of 4% and were as low as 2% in highly populated areas such as Central New Jersey and Los Angeles. The problem will only get worse in the coming years, as experts note that demand for warehouse space could grow by 1 billion square feet by the year 2025. Demand for office space is falling as the pandemic has led many companies to make the shift to a remote workplace; however, even extra space freed from this sector won’t be enough to satiate demand in the industry sector.
The cost of real estate rose by over 9% in 2021 and prices will likely continue rising in the coming years. As mortgage interest rates are likewise expected to rise during this time period, there is no better time than the present for companies to purchase lots even if they won’t immediately use them.
Construction Industry Shortages Take a Toll
Purchasing a larger-than-needed factory building is a wise move considering the fact that the construction industry is facing headwinds that could make future industry construction both difficult and expensive in the coming years. The current worker shortage has had a huge impact on an industry that has long struggled to find qualified workers and ends up now forced to compete with restaurants and retailers rapidly raising wages for new employees. The industry’s unemployment rate stands at 7.6% even as the national unemployment rate sits at 4.6%.
What’s more, the construction industry is also dealing with a shortage of materials. The prices of lumber, steel, aluminum, and plastic are at or near record highs, and the cost of commercial real estate construction is rising by over 23% year-over-year. This had led some experts to advise companies to not only purchase the land they think they will need in the future right now but also contract with a construction company to start immediate construction of future facilities in order to obtain needed building materials before prices rise further and to ensure construction is completed on time even if the construction company fall behind schedule.
How to Navigate the Challenging Industrial Real Estate Market
Peak Commercial specializes in industrial real estate and offers the customized assistance industrial buyers need in order to make the right land purchase. The firm offers a range of inventory options along with mortgage financing, insurance and escrow services, and 1031 exchange. With professional help, foresight, and planning, firms can make profitable industrial land purchases that will serve their current and future needs.