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CBRE’s market outlook: Industrial demand high; retail, office, flex adapting
CBRE’s market outlook: Industrial demand high; retail, office, flex adapting
Industrial space remains at a premium, retail is holding steady and office and flex space were in less demand, according to CBRE|Rochester’s annual Real Estate Market Outlook.
The year-end vacancy rate in the industrial and logistics space sector was just 5.5 percent, continuing a trend that began in 2013. In the eight years since, vacant space has declined from just over 13 percent to the 5.5.
There’s not likely to be space freeing up anytime soon, either, CBRE’s report says. Soaring transportation costs will prompt companies to lease more space to save on transport fees while providers of third-party logistics (3PLs) will accelerate the need for industrial space. 3PLs leased 30 percent of industrial space in the market, CBRE’s report said.
Retail vacancy dropped to 10.1 percent, the lowest vacancy number in the past five years and second lowest in the past 10.
A decline in overall retail square footage contributed to the decline as developers continue to repurpose mall and big-box store space into other uses.
However, CBRE’s report says “the final 50 feet” remains one of the most expensive pieces of the logistics chain, so physical store locations will become more important in the return process.
The COVID-19 pandemic greatly impacted the office sector as work-from-home and hybrid models became a more permanent part of the scheduling landscape.
Office vacancies ticked upward to 15.2 percent, up from the 14.9 of 2019, but the full impact won’t be realized until leases signed in recent years come to fruition. And CBRE says 87 percent of large companies intend to adopt some form of a hybrid work model, so vacancies likely will grow and rents will decline.
Vacancies in flex space in the Rochester market reached at 10-year high, at 12.7 percent, up nearly 1.5 percent year over year and up more than 3 percent since 2019.
But CBRE said the continued industrial space crunch will prompt a shift in the use of more flex space for industrial purposes.
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