Rising E-Commerce Drives Industrial Demand

Economic activity momentum dropped in the first quarter of 2016. Real gross domestic product (GDP) advanced at an annual rate of 0.5 percent, according to the Bureau of Economic Analysis’s first estimate. International trade felt the impact of the stronger dollar in the fourth quarter. The corporate outlook took a downward turn, with business investments dropping 5.9 percent on an annual basis in the first quarter. Businesses cut back investments in equipment and commercial real estate to the tune of 8.6 percent and 10.6 percent, respectively. With the dollar rising, international trade bore the brunt of a weakening economic environment. Exports declined by 2.6 percent, while imports moved sideways with a 0.2 percent annual rate of growth.

However, as more consumers shift to on-line purchases, distribution centers play a greater role in fulfilling orders, strengthening industrial demand. Retail e-commerce sales totaled $92.8 billion in the first quarter of the year, a 15.2 percent gain compared with the same quarter of the prior year, according to the Census Bureau. E-commerce sales represented 7.8 percent of total retail sales.

The first quarter employment landscape offered a few high points. Payrolls rose at a solid pace, adding 609,000 net new jobs. Average weekly earnings of private employees rose by 2.1 percent in the first quarter of this year, compared to one year earlier. With demand for industrial properties rising, transportation and warehousing employment gained 22,200 new positions, while wholesale trade employment rose by 24,700 jobs.

The industrial sector recorded rising fundamentals in the first quarter, with rising demand and declining vacancies. Industrial net absorption totaled 52.3 million square feet in the first quarter, up 6.6 percent year-over-year, according to JLL. Warehouse and distribution centers accounted for the largest share of demand, followed by manufacturing and special purpose buildings. Speculative supply increased, as well. New completions totaling 48.8 million square feet, of which 37.5 million square feet were speculative. Demand continued outpacing supply, driving industrial vacancies down to 6.2 percent, 50 basis points from the prior year. Industrial rents rose 5.9 percent, to an average of $4.92 per square foot in the first quarter.


Commercial fundamentals in smaller markets continued improving during the first quarter of 2016, but at a slower pace. Leasing volume during the quarter rose 1.3 percent over the prior quarter. Leasing rates advanced at a slower pace as well, rising 1.9 percent in the first quarter, compared with the 2.5 percent advance recorded during the fourth quarter. Vacancy rates varied across regional and product types in REALTORS® markets. Industrial availability reached 11.1 percent, a 23-basis point decrease on a yearly basis.

commercial vacancy rates


To access the Commercial Real Estate Outlook: 2016.Q2 report visit http://www.realtor.org/reports/commercial-real-estate-outlook.





George Ratiu, Director, Quantitative and Commercial Research

George Ratiu, Research Economist, writes regular economic columns and conducts research in the areas of commercial real estate, international investments, mortgage performance and foreclosures. He produces NAR’s Commercial Real Estate Outlook and manages quantitative surveys, including the Commercial Real Estate Quarterly Market Survey.

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