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The outer-borough industrial real estate market in New York has experienced robust growth through the second quarter of 2022. Industrial real estate is defined as a type of commercial real estate designated for non-public use, unlike retail and grocery stores.

Understanding industrial real estate

Industrial real estate is typically classified as either a storage and distribution facility, a manufacturing facility or a flex-use facility hosting office and industrial facilities like an auto dealership or research center. Industrial real estate may offer longer leases with annual interest increases, unique income opportunities, more tenants’ rights and responsibilities and incentives from the government and local municipalities.

Industrial real estate in the U.S.

The industrial and commercial real estate sector is experiencing record growth in 2022. According to analysts, leasing activity for the year is nearing an all-time high, asking rents for the quarter were the highest in 20 years and industrial vacancy rates fell to a new low. One main driver is the growth in e-commerce, now accounting for 22% of total retail sales, up from 15% in 2019. Supply chain volatility has also spurred sector growth in proximity to major ports.

For example, in New York, the average rent in the outer boroughs increased by 2.5% as demand outpaces supply in the sector. The most notable transaction of the quarter was CBRE Investment Management acquiring a 397,000 square foot multi-floor logistics facility at 640 Columbia Street for $330 million, which was fully leased to Amazon at the time of the sale.

Many have been increasing warehouse footprints as an inventory control strategy to address supply volatility. The majority of the users driving demand growth include food and beverage companies, pharmaceutical and medical companies, e-commerce companies and their suppliers, packaging companies and consumer products companies. Analysts expect 12 to 24 months of market growth, higher prices, higher leases, increases on annual lease escalations and limited vacancies.