MARKET DRIVERS
ASKING LEASE RATES for warehouses ticked up slightly to $1.11 NNN for 2020. This represents a 1.83% increase over the previous year. Asking lease rates for other non-warehouse industrial building types are at $1.40 NNN. This represents a 3.7% increase over 2019.
WAREHOUSE DIRECT VACANCY RATES increased 31.39% YOY in 2020 from 4.6% to 6.04%. Direct vacancy rates for other industrial property types doubled YOY from 1.7% to 3.5%.
GROSS ABSORPTION decreased YOY for all industrial property types. Gross absorption for warehouses decreased 42.66% YOY from 5.1 million s.f. to 3 million s.f. for 2020. Gross absorption for all other industrial property types fell 18.65% YOY from 1.5 million s.f. to 1.2 million s.f.
SALES VOLUME followed a similar downward trend, mainly due to a lack of available supply. Sales volume for warehouses fell 73% YOY from 3.1 million s.f. to 835,446 s.f. in 2020. Sales volume for all other industrial property types decreased 33% YOY from 1.7 million s.f. to 1.1 million s.f. in 2020.
DIRECT NET ABSORPTION stood at 1.3 million s.f. for warehouses in 2020 and 189,605 s.f. for all other industrial property types.
ECONOMIC REVIEW
COVID-19 caused multiple business closures and company layoffs in 2020. Surviving companies adapted by letting employees work remotely. The pandemic prompted restrictions on nonessential businesses and retail properties, sharply dropping economic activity in Silicon Valley. California unemployment stood at 7.9% at the end of 2020, with Santa Clara County reporting a 5.1% unemployment rate.
Stay-at-home and social-distancing measures helped make e-commerce grow 36.7% YOY from 3rd quarter 2019 to 3rd quarter 2020. Amazon was involved in three of the top five leases for 2020.
NEAR-TERM OUTLOOK
While COVID-19 caused gross absorption and sales volume to fall, the industrial market bounced back quickly with 1.5 million s.f. of direct net absorption in 2020 for all industrial property types.