Supply and Demand are like two heavyweight boxers that continue to trade punches round after round. For a few rounds, you think Supply has the upper hand and will easily win the match, then Demand comes roaring back and makes Supply look weak and headed for certain defeat. So, which one is stronger, Supply or Demand? That is the question. The answer, however, is constantly changing. In this article in Q2 of 2020, we lamented the weakness of demand but predicted it would surge strong after the pandemic. We continued to build through the pandemic in anticipation of that comeback by our hero Demand. We have not been disappointed! The natural demand that was not fulfilled during the pandemic did not go away; it was simply delayed. At the same time supply was knocked to the mat several times and has been slow to get back to full strength, more unmet demand continued to pile on the left-over demand from the pandemic.
Two years later, Demand is still outstripping Supply. The insatiable Demand is driving the demand side to bid up prices at a rate not seen in decades. Having available product is the only game in town in the industrial real estate market. The uncertainties in the cost of construction and supply-chain delays make build-to-suits a very risky proposition.
We have one build-to-suit project currently under construction, but the only way we could make it happen was to divert buildings we already had on order to the desired location. This saved 6 months in the project timeline. We would not have been able to meet their schedule any other way in this market.
Demand is continuing strong in industrial even as retail and residential are softening. The softening in other sectors should allow supply to gain some ground on the continued strong industrial demand. The industries that we serve are in fact adding to the available supply as well.
Full employment, meager supply and unmet demand are all working to drive up prices. This cycle will run its course as the supply chains continue to recover and expand. Supply is not likely to get back to matching Demand for 6 to 8 more quarters. For the foreseeable future, it will be important to take what is available and pay the asking price. It won’t stay available long!
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