Increased material costs and supply chain delays hamper industrial construction completions

Demand for warehouse space remains historically high, but developers are struggling to complete construction projects on time due to increased material costs and shipping delays, according to a new report from CBRE.

Construction completions are down 6.1% year-to-date, despite an under-construction volume of 432.6 million sq. ft. in Q3, a record high. While demand is driving many new projects to launch, escalating costs and shortages of materials such as steel, curtainwall, and rebar, are causing many developers to delay projects after they break ground.

According to CBRE EA Supply Track, stalled projects spiked to 213 in Q2, up from 66 in Q1. However, construction deliveries showed some signs of a rebound in Q3, rising 36.1% quarter-over-quarter to 79.3 million sq. ft., providing some recent relief for tenants.

With a historically low vacancy rate of 3.6 percent, warehouse users are often hard-pressed to find new space for expansions to keep up with demand. The tight market has caused rent growth to soar, rising 10.4% year-over-year as of Q3.

“The industrial market is as tight as it has ever been and the slowdown for construction deliveries is something we are watching closely,” said John Morris, executive managing director and leader of CBRE’s Industrial & Logistics. “The business, and consumer spending that is driving it forward, need more product to help alleviate some of the pressure on tenants as they struggle to find new space. While Q3 was a strong quarter for construction completions, the second-highest quarter ever, new supply overall is not keeping up.”

Despite the slowdown in deliveries, the market remains on pace for another record year. Transaction volume is up 48.4% year-over-year as of August.