Over the past two years, the industrial sector of commercial real estate has experienced a surge in demand and record-breaking absorption rates. However, recent data from Q3 2023 shows a slowdown due to an increase in supply and cautious tenants.
According to Colliers’ U.S. Industrial Market Statistics, the vacancy rate for industrial properties has risen for five consecutive quarters due to high levels of new supply and normalizing demand. Cushman & Wakefield’s U.S. National Industrial MarketBeat also reports that Q2 saw the highest amount of new construction delivered on record. Despite this influx of supply, Plante Moran’s U.S. Industrial Real Estate Market Summary notes that it hasn’t significantly shifted market conditions in favor of tenants.
On the other hand, Plante Moran states that concerns over economic uncertainty and increased supply have caused a downturn in activity within the industrial sector since its peak during the pandemic period. JLL’s Industrial Outlook supports this observation by stating that many potential buyers are taking longer or pausing their decision-making process as they assess various outcomes.
Moreover, rising labor and material costs have led to slower construction activity while there is also concern about higher interest rates potentially lowering property values below replacement costs according to Lee & Associates’ North America Market Reports.
As more new projects come online over the next 17 months, experts predict an increase in vacancy rates with slower rent growth as leasing activity slows down throughout 2024; however analysts at Cushman & Wakefield believe there will still be strong demand for Class A logistics facilities despite these challenges.
Looking ahead into late-2024 through early-2026 timeframe , Lee & Associates anticipates an uptick in demand driven by onshoring high-tech manufacturing operations . Even with continued delivery of new projects , JLL expects landlords will continue having leverage within current market conditions .
