Q&A talks with Mark Duclos, president of Hartford brokerage firm Sentry Commercial, about the outlook for industrial real estate.How did the industrial real estate market fare in 2021?Duclos: 2021 was another banner year for the industrial real estate market, locally, regionally and nationally.Occupancy rates in the industrial markets are at all-time highs. Some markets nationally […]
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Q&A talks with Mark Duclos, president of Hartford brokerage firm Sentry Commercial, about the outlook for industrial real estate.
How did the industrial real estate market fare in 2021?
Duclos: 2021 was another banner year for the industrial real estate market, locally, regionally and nationally.
Occupancy rates in the industrial markets are at all-time highs. Some markets nationally effectively have a 0% vacancy. The national average is less than 4% for the first time ever.
Locally, the industrial markets continue to function well, albeit it is predominantly a seller’s and landlord’s market, with buyers and tenants competing for property and space.
New industrial construction remains vibrant, including design-build and speculative construction.
That said, large-tract land acquisition opportunities remain scarce and speculative construction projects typically end up being pre-leased by the time construction commences or is completed.
Sales prices of industrial real estate continue to spike, both occupier-driven and investments purchases. This — like the leasing market — is driven by the imbalance of supply and demand.
While the demand side of the occupier-driven market remains constant, the pool of investors for investor-driven purchases continues to increase daily as investors from all over the country have increased interest in our markets.
Some of this is driven by the flood of capital and available debt as well as lack of availability and increased pricing in larger metro areas.
The volume of land sales, while slowed a bit because of the lack of availability, continues to be above market. Pricing for land sales continues to rise.
Concerns remain about construction price increases as well as project delays due to the disruption in supply chains and labor shortages. This will likely remain a concern throughout 2022.
What are some key trends to watch in industrial real estate in Connecticut in 2022?
Duclos: 1. As previously mentioned: Vacancy rates are at all-time lows and demand for space will likely not contract in 2022. Therefore, without an increase in inventory, pricing will continue to rise at record rates.
Thus, new construction (speculative development, new owner-occupied construction and/or expansion of existing plants) will continue to be an important factor in accommodating companies coming into the state as well as existing companies’ needs to expand.
However, there is no end in sight relative to increasing construction costs and unreliable timelines. The good news is that the supply chain does appear to be stabilizing.
However, the dependence on an improving COVID landscape remains a concern, both for supply and labor.
That said, new construction also requires land, which is becoming scarce.
2. The e-commerce boom: It’s no surprise that the local, regional and national markets have all enjoyed a boost, predominantly because of the expansion of e-commerce.
In the Greater Hartford region we have enjoyed a part of this run since the construction of Amazon’s Windsor distribution center in 2014. That’s been quite a nice run.
That said, the question remains: How much e-commerce distribution build-out is left? Most experts believe we are in the middle innings. That said, concerns about unwieldy construction cost increases, lack of labor in almost every market, revisions in the omnichannel strategy, etc., bring caution to the air.
3. Reshoring, just-in-case inventory, reverse logistics, efficiencies, brick-and-mortar retail, micro-distribution: The evolution of the way products are manufactured and distributed continues to evolve and that will have a major impact on the ever-changing industrial landscape.
4. Jobs, jobs, jobs! For many manufacturers, it’s no longer only about location, location, location. It’s about talent, talent, talent.
If you can’t provide the talent then they aren’t coming to your state/region. The pandemic has created an even greater awareness of this as well as a redefinition of what type of talent employers are looking for.
Does our region have a sufficient labor pool and does that labor pool have the skill sets needed for today’s manufacturers?
