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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day and thank you for standing by. Welcome to the First Industrial First Quarter Earnings Results Call. At this time, all participants are in a listen-only mode. After these speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference call is being recorded. [Operator Instructions]
I will now like to turn the call over to your speaker today, Mr. Art Harmon, Vice President of Investor Relations and Marketing. You may begin, sir.
Thank you, Sarah. Hello, everyone, and welcome to our call. Before we discuss our first quarter 2022 results and our updated guidance for the year, let me remind everyone that our call may include forward-looking statements as defined by federal securities laws. These statements are based on management's expectations, plans and estimates of our prospects.
Today's statements may be time sensitive and accurate only as of today's date, April 21, 2022. We assume no obligation to update our statements or the other information we provide. Actual results may differ materially from our forward-looking statements and factors which could cause this are described in our 10-K and other SEC filings. You can find a reconciliation of non-GAAP financial measures discussed in today's call, in our supplemental report and our earnings release. The supplemental report, earnings release and our SEC filings are available at firstindustrial.com under the Investors tab.
Our call will begin with remarks by Peter Baccile, our President and Chief Executive Officer; and Scott Musil, our Chief Financial Officer, after which we'll open it up for your questions. Also on the call today are Jojo Yap, Chief Investment Officer; Peter Schultz, Executive Vice President; Chris Schneider, Senior Vice President of Operations; and Bob Walter, Senior Vice President of Capital Markets and Asset Management.
Now let me turn the call over to Peter Baccile.
Thank you, Art, and thank you all for joining us today. 2022 is off to an excellent start. Our team continues to achieve strong operating results, both within our in-service portfolio and key development and value-add leasing rents. As you read in our press release yesterday, we also completed an important capital markets execution in the form of a new $425 million term loan, which Scott will discuss shortly. Overall, the strong fundamentals in the industrial sector continue to drive high occupancy rates and rental rate growth.
According to CBRE EA, in the first quarter, national vacancy remained at a record low level of 3% for the second quarter in a row. Net absorption was 76 million square feet, roughly in line with new completions of 69 million square feet. In our portfolio, we finished the quarter with an occupancy rate of 98%. We also successfully backfilled our largest 2022 move-out of 390,000 square footer in the I-55, I-80 submarket of Chicago, there, we achieved a cash rental rate increase of nearly 30% with no downtime.
We continue to capture strong rental rate increases on new and renewal leasing. Through yesterday, we had taken care of 72% of our 2022 rollovers at a cash rental rate change of 20%. For all of 2022, we anticipate that our increase on rental rates, on new and renewal leasing, will now be in the range of 20% to 23%. Moving on to new development and value-add activities. Since our last earnings call, we inked 167,000 square feet of leases at First Park Miami to bring buildings 9 and 11 to 70% leased.
We also signed a 31,000 square foot lease to stabilize a value-add project in Northern California. As discussed on our last earnings call, we expanded our pipeline by starting five buildings in the first quarter. These are located in Southern California, Denver, the Lehigh Valley, Chicago and Miami, where we are building the latest addition to our First Park Miami project. These projects totaled 1.3 million square feet with an estimated investment of approximately $168 million. In the second quarter, we expect to start another project in the city of Fontana in the Inland Empire to capture tenant demand in this sought after supply-constrained market.
The vacancy rate in the Inland Empire market currently stands at 0.2%. The estimated investment for this 83,000 square footer, to be known as First Elm Logistics Center is $21 million with an estimated yield of 9.7%. This projected yield is reflective of the great work by our Southern California team and assembling the land at a low basis as well as outsized growth in rental rates in this market over the last couple of years. Including the new second quarter development start, our developments, in process, totaled 6.3 million square feet with an investment of $751 million which are 23% leased as of yesterday. The projected cash yield for these investments is 6.8% which represents an expected overall development margin of approximately 100%.
As we have highlighted in prior calls, we are well positioned to capture additional demand and growth with our strategic land holdings. During the first quarter, we added three sites in the Inland Empire and the site in Northern California for a total of $55 million. These new sites will support more than 700,000 square feet of new development when entitled, representing $170 million of potential investment based on today's construction costs. Including these acquisitions and adjusting for our new Inland Empire start in 2Q, in total, our balance sheet land today can support an additional 14.8 million square feet. This represents approximately $2 billion of potential new investment based on today's estimated construction costs and the land at our book basis.
These figures exclude our share of the land in our Phoenix joint venture. With that, I'll turn it over to Scott.
Thanks Peter. Let me recap our results for the quarter. NAREIT funds from operations were $0.53 per fully diluted share compared to $0.46 per share in 1Q 2021. Our cash same-store NOI growth for the quarter, excluding termination fees, was 14.4%, driven by higher average occupancy, increases in rental rates on new and renewal leasing, rental rate bumps embedded in our leases and lower free rent. As Peter noted, we finished the quarter with in-service occupancy of 98%, up 230 basis points compared to 1Q 2021.
Summarizing our leasing activity during the quarter, approximately 3.5 million square feet of leases commenced. Of these, 800,000 were new, 2 million were renewals and 700,000 were for developments and acquisitions with lease-up. Tenant retention by square footage was 72.3%. Moving on to the capital side. As Peter mentioned, we have closed on a new $425 million term loan with a tenure of 5.5 years.
This new loan refinances our $260 million term loan which was scheduled to mature this September. Of the remaining $165 million of proceeds, $67 million will be used to retire a 4.03% mortgage loan, which we plan to pay off in the second quarter. And the remaining $98 million will be used to pay down our line of credit. The new term loan has an interest rate of SOFR plus a SOFR adjustment of 10 basis points, plus a credit spread of 85 basis points. The credit spread is a 25 basis point improvement compared to the expiring loan.
We would like to thank our banking partners for their many years of strong support of First Industrial. We will also continue to evaluate our needs for additional capital throughout the year as we execute on our investments for growth.
Moving on to our updated 2022 guidance for our earnings release last evening, our guidance range for NAREIT FFO is now $2.10 to $2.20 per share, with a midpoint of $2.15 per share, which is $0.01 per share increase at the midpoint, reflecting our first quarter performance and an increase in capitalized interest. Key assumptions for guidance are as follows: quarter end average in-service occupancy of 97.5% to 98.5%, a 25 basis point increase compared to our prior earnings call.
Please note that our occupancy guidance now assumes that the lease-up of the 644,000 square foot Old Post Road space in Baltimore will occur in the fourth quarter for which we expect to more than offset the impact with incremental leasing in the remainder of our portfolio.
Same-store NOI growth on a cash basis before termination fees of 7.75% to 8.75%, an increase of 50 basis points at the midpoint compared to our prior earnings call, reflecting our increased occupancy guidance. Guidance includes the anticipated 2022 costs related to our completed and under construction developments at March 31, plus the expected second quarter groundbreaking Peter discussed earlier.
For the full year 2022, we expect to capitalize about $0.09 per share of interest. And our G&A expense guidance range is unchanged at $33.5 million to $34.5 million. Other than previously discussed, our guidance does not reflect the impact of any other future sales, acquisitions or new development starts after this call, the impact of any other future debt issuances, debt repurchases or repayments other than those previously discussed, and guidance also excludes the potential issuance of equity.
Let me turn it back over to Peter.
Thanks, Scott. As we said, '22 is off to a great start. We're excited about the developments, we're readying to serve tenants' supply chain needs, while creating significant shareholder value. We also look forward to capitalizing on the opportunities ahead and our well-positioned land holdings.
Operator, with that, we're ready to open it up for questions.
[Operator Instructions] First question comes from the line of Ki Bin Kim from Truist. Your line is open.
On the $425 million loan, what are your thoughts on swapping it? And if you did, what would the impact be to FFO per share this year?
Ki Bin, it's Scott. $260 million of the $425 million of the loan are already swapped to September from existing swaps that we had outstanding. We do plan to swap this to fixed rate either a portion or all of the loan. That's something that we plan to do. As far as the impact on FFO guidance, if you look at where you could swap today, we have that rate built into our guidance range. So that's the impact.
Okay. Got it. And I realize leasing on your development pipeline can jump around quarter-to-quarter, so I fully get that. But can you just give some insights into the activity you're seeing for leasing a development pipeline, whether that'd be number of visits or proposals, metrics like that?
Sure. I'll take a crack at this, and then Jojo and Peter can jump in as well to add some more color. As you know, we're 98% leased in the in-service. All of our developments that are completed with the exception of two small spaces in First Park Miami are also leased. With respect to the projects underway, we have significant pre-leasing already, the activity around that space is significant.
We're having activity and discussions, I would say, on just about every project, except for the ones that are going to deliver next year. So the projects that are going to deliver this year we're having some pretty active dialogue. So the market is very robust. We're excited about it. We're very happy with where we are.
Jojo or Peter, do you want to add anything else?
Yes. One of the earlier projects that will be completed, but not until the end of the second quarter, is a project in Seattle. And we have responded to multiple inquiries and we already have multiple showings there. So, we're getting good activity there, but no lease announced yet.
Ki Bin, it's Peter Schultz. So the only thing I would add is we've seen an acceleration of interest from prospects in the last couple of months. So to Peter's point and Jojo's point, we're now seeing multiple prospects on most spaces, which is really reflective of the fact that there is more demand than there is supply in the markets that we're building in for the most part.
And these are traditionally pretty early conversations relative to the past where typically those conversations wouldn't start until the buildings were completed.
Your next question comes from the line of Greg McGinniss from Scotiabank. Your line is open.
Just given the strength of leasing and expected increase in full year same-store growth, I guess you were somewhat surprised by the limited FFO per share guidance increase. It seems to just reflect the higher capitalized interest potentially. We had originally thought that maybe due to favorable debt increases, but it sounds like that's largely swapped. So is this just some conservatism on your end? Or are there other items limiting any FFO per share guide increases?
No -- this is Scott. No, there's not, as we mentioned in the -- in our remarks. Basically, the $0.01 increase is due to a slight increase in capitalized interest in same-store increase, which is driven by our midpoint occupancy increase in guidance.
And again, don't forget, we're all -- we're pretty leased up. So the opportunity to improve on that number depends a lot on how quickly we can lease up new developments when they are completed, and they are going to be completed between the end of this quarter through the second quarter of next year. So, we're -- that's really the upside.
Okay. And then kind of looking at that $2 billion of potential development, can you give us any sense in terms of what expected yield or profit margin might be achievable if you think about just rent today?
Well, look, the best indicator, I suppose, is where we are now. This is land we have in-house. So our basis relative to market is strong. We expect yields to be strong on that going forward. I'm not going to speculate on margin, cap rates move, and this land will be built out over three or four years.
So -- that's something that we really can't comment on. But we feel confident that we're going to add significant value to that pipeline. You've seen what we've been able to achieve in the way of margins the last handful of years. They've been very, very robust. We don't have any reason to think that, that will not continue.
And the only thing I will add to what Peter said is that if you look at the composition of the -- or the future land position assuming we can develop this. A lot of them are in coastal markets and in predominant, and as you have seen, and we project higher rent growth in coastal markets. So we feel good about that capital allocation.
Your next question comes from the line of Rob Stevenson from Janney. Your line is open.
Scott, just a question on the debt side. If you guys had wanted to do 5- or 10-year fixed rate debt unsecured notes instead where would pricing have been for you guys relative to where you were at year-end before the interest rate started to pop? Because it seems like over the last five years, every time rates went up, the spread for you guys and the rest of the REIT group compress. And so the actual rate didn't really go up very much. Are you seeing anything different this time?
Yes. Rob, I can tell you the spread since the end of the year have gapped out between 30 to 50 basis points depending upon what time frame you're looking into. So that was one of the reasons why we picked the five-year term loan. The spreads in that market had not gapped out at all. We locked into an 85 basis point spread, which was the same deal that we locked into last July. So the bank market has been very, very steady on spreads. The public market, the private placement market has definitely gapped out quite a bit since the end of the year.
Okay. That's helpful. And then what are you guys seeing in terms of the rate of increase in terms of material and labor cost for construction. Is that still accelerating? Or are you seeing some stability there? Are you seeing any deceleration in the rate of growth there? And what about availability issues? Are you having problems there? Or is that okay for you guys at this point?
Sure, Rob. It's Peter Schultz. I would say we're seeing really two dimensions of this. One is costs continue to go up, and it depends on the component and where it is in the country. But the other leg is that delivery dates and availability materials continue to expand.
As an example, a steel order today is probably 12 months out, proofing is longer than that. So it's definitely impacting our construction schedule probably, overall, by three months or so and getting components continues to be a challenge, whether it's dock levelers, or switch gear or roofing materials as an example.
So we continue to be challenged by that and work with our general contractor partners and ordering materials in advance to derisk that, and we have and continue to have a pretty good success there. But it remains a challenge. Jojo, anything you want to add?
No, I'd just add in terms of labor, that's embedded in terms of construction costs. And in terms of our underwriting, we're forecasting increase there, and we're adding contingency as well, which all continues in our underwriting.
Okay. And then last one for me. Scott, back to the earnings guidance question. Is there any incremental drags from a one-time or nonoperational aspects like debt prepayment penalties or GAAP, refinance charges or whatever that we need to be aware of on the NAREIT definition side? The reason why I ask is just similar to the other question, you guys get $0.53 of FFO per share in the first quarter, which annualizes to $2.12 and the bottom end of the guidance range is $2.10. So I didn't know whether or not there's some sort of nonrecurring thing that we need to be aware of to adjust for whether or not it's just potential leasing, et cetera, the sort of whole hodgepodge of potentials down there.
Yes, Rob. There isn't any one-time type of item. We just give a guidance range. It tightens as the year progresses. I would say, though, that there's probably some decent upside increased in the guidance. We're delivering a lot of developments in the second and third quarter. We assume 12 months pro forma for lease-up. So to the extent that we can sign leases earlier than that, we might be able to have a little bit of pickup in 2022.
Next question comes from the line of Todd Thomas from KeyBanc Capital Markets. Your line is open.
First question on 500 Old Post Road, can you just provide an update there on the leasing demand for that asset and what you're seeing in the market? And I think previously, you talked about an approximately 10% mark-to-market. I was wondering if that's changed at all just in light of the current change to the timeline.
Sure, Todd. It's Peter Schultz. So we're now seeing interest from multiple prospects for the full building. So we're pleased about that. Those requirements all have a range of outcomes in terms of timing for lease execution and occupancy.
So based on that, we thought it's prudent to push back the occupancy date four months. In terms of the rental increase, we now expect that to be plus or minus 25%. And certainly, the lease-up of this building will be another opportunity to increase our occupancy to over 99%.
Okay. That's helpful. And then similarly, I guess, you discussed the '22 expiration in Chicago. Any update on the one in the Lehigh Valley that was about 340,000 square feet in terms of expected downtime or timeline to backfill? And then is there anything else of size as we look out at the balance of '22 or really '23 in terms of expirations?
Take the first and Chris will...
Sure. Todd, it's Peter again. So correct, the 341 in the Lehigh Valley tenant vacated at the end of the second quarter, we have it in our guidance to be released in the fourth quarter. Activity in that submarket continues to be very, very good. We expect the rents increase to be in the 35% to 40% range on that asset. Chris?
And Todd, Peter just mentioned the largest rollover after that, there really is no significant rollovers left for the balance of 2022.
Your next question comes from the line of Michael Carroll from RBC Capital Markets. Your line is open.
I wanted to get a sense of how aggressive FR can be pursuing new development projects. I mean, obviously, the Company was very active in the first quarter, but trends slowed in the second quarter, mean is this just due to lumpiness in timing? Or is it driven by material issues and/or the development leasing trends and the in-process pipeline?
It has to do with a few things. One is, in fact, what you said it has to do with when projects are going to be ready, when we're going to have entitlements. The other has to do with our speculative cap. We have $158 million of availability under that today, which we fully intend to utilize. And we've got projects in various stages of being ready to come. And so, we'll come back to you as the year goes on, on that.
Great. And then, Peter, earlier in the call, you kind of highlighted that development leasing is occurring earlier when the building is under construction. Can you provide some color like, what -- how early do tenants start looking at a project today versus, let's say, pre-COVID or historically? I mean, how much earlier are they starting to start looking for new deals?
Well, there are those that are opportunistic and realize that they wait too long, they're not going to have any alternatives, and those conversations are beginning to happen pretty early on in the construction process. As you can imagine, we're not in a big hurry to put ink to paper at the beginning of the development, if it's going to take 12 months to deliver the project.
But it's good to see that activity and that interest and we track that and of course, get back in touch with those potential prospects when we get closer to completion. So historically, it was kind of a building and then have the conversation, and we're having the conversations much, much earlier now.
Is there a time frame of when you're willing to lease it? I mean, do you want to lease it three months before it's completed? Or is it just depending on how aggressive the prospective tenant wants to be on the rental rate side?
That's a good question. Particularly in the coastal markets, it seems like every new deal is a record deal in terms of rental rate. And obviously, we want to continue that trend and look to maximize the value of all of these leases that we're signing. So it really depends on how -- we're going to push very, very aggressively if the tenant wants to meet the ask three or four months before completion, we'll certainly sign that lease.
[Operator Instructions] Your next question comes from the line of Caitlin Burrows from Goldman Sachs. Your line is open.
Maybe just a quick follow-up to one of the previous questions on construction costs. You mentioned that you're adding contingencies in underwriting. I was wondering if you could just clarify what that is. Is it related to -- if there are cost increases something else happens? Or could you just clarify that point?
Jojo?
Sure. Contingencies straight percentage increase anywhere from 3% to 5% on hard construction costs. That is in addition to our projection that the total construction cost will increase. So first of all, what we do is look at the construction cost, we increase that by an estimated factor and further add that contingency. And that's just applying to the -- it doesn't have to do with really our forecast that will be in control segment because we've been on budget almost on every project, but it's all for the unknowns. So, a lot of times the -- we think that's contingency.
So our estimated budgets have increased significantly to offset our anticipated growth in the cost. And on top of that, we had an additional contingency.
Okay. I might follow up with that again. Maybe on the acquisition side, you guys acquired two properties in the quarter. The cap rate was in low 4s, so below 2020 and '21 levels. Could you go through how those deals kind of came to be and maybe your choice to acquire in Southern California versus other markets?
Sure. Sure. We're -- I mean, we're very pleased with those acquisitions. Both -- they were 100% off market. If they were in the market today, there would probably be sub threes. And they're all replacement costs and it never hit the market. And a lot of those are mid- to long-term lease and it's a size range where we all competed private buyers who takes some time in trying to get financing and we paid all cash. So we're very pleased about those projects.
Got it. And maybe then going forward, as you think about funding acquisitions and development over the course of the year, obviously, strong cash flow growth itself contributes. But how do you think maybe equity or dispositions could come into play? And how do you expect to choose -- or prioritize one versus the other?
Sure. Caitlin, it's Scott. For the developments under process plus the new start we mentioned, the total costs we projected for the year is about $275 million. We could take care of that with property sales. Just as a reminder, our guidance is $100 million to $150 million excess cash flow.
And we also have some capacity in our line of credit. We obviously plan to put more money out in the market and new investments, and we'll look to determine what our capital market strategy would be at that time. It could be indebtedness, it could be equity as well as we like the stock price.
The next question comes from the line of Dave Rodgers from Baird. Your line is open.
Wanted to ask about the leasing spreads in the quarter, you were 12%, 13%. And then you're guiding, obviously, 20% to 23%. So some big acceleration in the back half of the year, and you've given us some color on some of the big leases maybe 35%, 40%. So, one -- well, a couple of questions. One is, can you kind of talk about what that looks like on a quarterly basis as you go forward? Two, any outliers in the first quarter that kind of made that a much lower number? And then third, maybe, more general commentary about lease sizing and the spreads that you're seeing across the portfolio by lease size or property types?
Chris?
Dave, this is Chris. As far as in the quarter, we really just had a little bit higher concentration of our non-coastal rollovers in the quarter. And you've seen the numbers for the full year. We're expecting to be in the 20% to 23% range. So that works out for the final three quarters, we're averaging plus or minus 30% in cash rental rate increases. So, we really -- this certainly is not a trend. It's more of a just kind of a quarterly fluctuation. As far as size ranges, maybe Jojo and Peter can talk about it, but it's pretty spread across all the size rates as far as what we're seeing in rate increases.
Right, correct. I confirm that across all sizes and up to 30,000 footers to over 0.5 million feet.
That's helpful. And then maybe just one follow-up, I mean can you guys talk about have you put more thought around the idea of the total mark-to-market for the portfolio. As you sit here today, certainly with rents growing as fast as they are and seeing spreads kind of bounce around a little bit, will be a helpful thought process as well.
Yes. So as you know, we don't track that, Dave. We continue to think that the best indication of how we're doing is what we're signing leases for. Chris just went through the math. It certainly feels like that number is going to continue to be very robust and shouldn't increase through the end of this year, especially in the coastal markets where we're seeing significant rent increases in the 20%, 25% range.
Your next question comes from the line of Mike Mueller with JPMorgan. Your line is open.
I guess, Peter, based on your comments about the land bank and the time to go through it, it seems like you're still expecting maybe $500 million to $600-plus million of development starts a year. Do you think you're going to need to ramp up dispositions or are the higher margins going to enable you to kind of keep disposed pretty low?
So those are different decisions, Mike. As far as dispositions go, we're really looking at continually managing the portfolio and disposing of the lower growth assets in the portfolio. We don't really look at that as the funding source for our new development opportunities. The new development opportunities over the long term will be funded primarily from debt and additional equity issuance over time. So, the volumes are going to be, as you point out, much more significant going forward than they have been historically for us, especially as the overall size of our company continues to increase as rapidly as it has. And again, we will fund that growth through a combination of debt and equity over time.
Got it. And then one on lease spreads. So, the 20% to 23% cash spread expectation for this year, on a net effective or GAAP basis, where does that number pencil out? How much higher or how much above, say, 30% would that be?
Yes, if you look at the signed 2022 renewals that we've signed to date is a 20% cash rent increase, net effective or GAAP increase that's 36%.
Our next question comes from the line of Anthony Powell with Barclays. Your line is open.
A question about the non-coastal lease spreads. I know they're a bit lower than coastal, but how they performed relative to your expectation, how they performed relative to last year? And what's your outlook for, I guess, non-coastal lease spreads over time?
Peter, you want to take that?
Sure. It's Peter Schultz. I would say better than expectations, which is consistent with what we're seeing across the country where rents continue to grow at a high and fast pace. And as we said, we're doing better in the coastal markets. But even in the non-coastal we're doing better than we thought. Jojo?
Absolutely, the non-coastal markets are in the east. And then we expect -- and then for coastal markets, we're in the 20% range, 20-plus percent. So, everything -- all the markets are doing well. It's just maybe 5% to 10% difference.
Got it. And maybe on the $2 billion development, I guess, pipeline or potential, how much of that is already entitled? And are you seeing, I guess, more community opposition or whatnot for industrial development impacting your current developments or your thoughts about your future development and how do you navigate that issue as it becomes a little more prevalent?
I'll take the second part of that question. Jojo will take the first part. In terms of pushback, that's been a phenomena -- that's something we've had to deal with for years. I would say that our teams are doing a great job working with the local municipalities. They have a lot of patience and they have great relationships that they developed over a long period of time.
So, we're really working with those that are more municipalities that are more interested in improving and their tax base, et cetera. So, we're dealing with the pushback. It takes time, it takes patience, but our team is doing a great job finding the opportunities and getting them approved.
In terms of the developable site inventory, if you look at in terms of the development square footage, about 70% is entitled and roughly 30% is unentitled. And an overview on the unentitled land is primarily Southern California and Northern California. And just to add on what Peter had mentioned, since First Industrial started, we're banning 100% in terms of taking unentitled land and turning in entitled land.
And part of that is kudos to our team, but we do a lot of pre-due diligence even with the cities like Peter mentioned, we partner with cities early on before we take on the property. So, we want to know and need to know what the temperature is and what their view is on our development. We do a lot of upfront work before we take the risk, and that's the result. That's why we've been banning 100% right now for entitlement.
Got it. Maybe one more for me. We're hearing about Amazon is pulling back some of this development or its real estate development. Are you seeing that? And if so, who's replacing them in your markets in terms of generating incremental demand?
Yes. And the answer is yes. They are pulling back. There are some -- definitely their activity in 2022 does not matter, activity in 2021, which was a record. But at the same time, Amazon also has been using quite a bit more of 3PL, third-party logistics firms and outsourcing.
Now in terms of this comparison in terms of the composition of the market Q1 '22 versus Q1 '21, the major -- being kind of the major user in the market has changed a little bit. Manufacturer and food-related have increased significantly. We're talking about 30% to 40%. And e-commerce in Q1 2021 was the top -- number three. In Q1 2022, e-commerce is now number five.
What's the biggest users of industrial real estate is still 3PLs and general retail and wholesale. So that kind of gives you a little bit. So it's a broad-based market, but direct e-commerce, which includes Amazon has taken a little bit of a -- slowed down a little bit in Q1 2022.
[Operator Instructions] Your next question comes from the line of Rich Anderson with SMBC. Your line is open.
Last answer was the answer partially to my first question, I was going to bring up Netflix losing subscribers, and they were a big beneficiaries of the pandemic. And stock is down 60% today. And then you just mentioned Amazon pulling back, another big beneficiary of the pandemic and e-commerce, in general, as a concept, declining in terms of activity in 2022. Does any of that observation, broadly speaking, give you any pause? I can predict the answer, but any pause about being a speculative developer. Are these the sort of the early indicators of something more sinister coming down the road as it relates to the big growth driver of the business, which is e-commerce.
Yes. So let me take a crack at that. And any of you guys who are out on the table line join hands and feel free. Amazon has been growing their space faster than their sales for years, and that is very atypical. A new business typically gets to rationalizing their space needs much earlier on. They are now, looks like, and what they tell the world beginning to rationalize their space. For now, that means they're going to begin to lease and buy less space for themselves.
As Jojo pointed out, we are seeing them become more active through other -- through third-party logistics providers. Now we don't know what their overall strategy is. But if you decided that your capital was being put to better use elsewhere and you didn't want to have to sign very long-term commitments you might begin to distribute your product through a 3PL where those contracts are typically three years.
So their strategy is shifting. We wouldn't -- it doesn't give us pause at all because e-commerce is going to continue to grow in terms of percentage of overall retail sales. That's the first thing. The second thing is. The demand base is extremely broad. As Jojo pointed out, e-commerce is now the fifth most active user of industrial space in the first quarter of 2022. So, it's very good for the business that the broadly-based demand comes from so many different sectors, and we're not concerned at all about the news on Amazon.
So I just -- and just to add to our numbers there in terms of that, if you compare Q1 2022 to Q1 2021 in terms of just growth activity, Q1 2022, actually just slightly exceeded Q1 2021, but at a lower vacancy rate. As you all know, the market actually got better in terms of tighter because of the lack of supply going to the markets that we're targeting. So in essence, Q1 2022 is actually a better market than Q1 2021.
I could appreciate that. Next question, again, more big picture thinking. During the pandemic, there was -- the talk was lack of truck drivers. Now there's been a recent decline in trucking demand. Again, you have inflationary environment, consumer demand could get pinched in that world. Are you hearing anything at all as it relates to perhaps the direction of inventories or whatever that is obviously important to your business model that is changing for the good or better? And I'm perhaps repeating myself with this question, but I didn't want to get into those two sort of observations on the trucking and the consumer side.
Sure. Sure. Thanks for that question. And obviously, we've been taking -- watching that thing to look at that. What we actually experienced is the lowering of spot pricing, not the demand. When you look at all our trucking clients, demand is actually up, but the spot pricing is down. And part of the reason we're hearing the spot pricing is down is that more trucks have actually come in because it's such a profitable business. Last year, they had record volumes or new entrants in the trucking market.
And secondly, there's quite a movement from spot pricing to contract pricing. What happens is that if you have more competition rather than put your trucks on a daily basis, you sign up contracts on a monthly basis. And therefore, the prices went down a bit. We actually -- us as landlords, we actually think that transportations coming down is good for us because that's more -- that just needs more rent that we can push. In your other question on sales inventory, the Federal Reserve just came out with a number for sales -- inventory to sales ratio of 1.17.
Our view here in FR, it does very, very well. If you look at even pre-pandemic, we were running at 1.25 and the pandemic shows that the 1.25 doesn't even work because if you don't have supply, you will lose sales. So, we think there's going to be a ramp-up from that extraordinarily low 1.17. We just -- because the model just changed from just in time to just in case. So, we feel good about the inventory. We think the inventory sales rate is going to go up.
There are no further questions at this time. I would now like to turn the conference back to Mr. Peter Baccile.
Thank you, operator, and thanks to everyone for participating on our call today. We look forward to connecting with many of you, in-person, in the coming months. Be well.
This concludes today's conference call. Thank you for participating. You may now disconnect.