U.S. industrial market report

Q1 2024

The start to 2024 was marked by a concerning lack of overall leasing, a continued but declining historic amount of deliveries, and further increases in overall vacancy and availability rates nationally. Despite the negative data points and potentially concerning narrative around the strength of the overall market, a near-historic start to the year for overall Port activity, strong pre-leasing activity such as touring and negotiations by occupiers, large amounts of pre-COVID or early COVID lease expirations rolling over in the next 24 months, and signals that most of the surge of new supply hitting markets for the past three quarters is nearly over all point to the fact that data metrics are laggard indicators, indicative of a market 12 months in the past. The materialization of many pre-leasing activities is expected in the second half of 2024, as the markets have a chance to digest newly delivered vacant supply without new options further pushing up rates. Market rental rate growth has remained steady, albeit stunted in terms of the COVID-cycle increases, with an expected New Space Gap set to occur at the beginning of 2025. Concerns over sublet space increases in markets like Southern California are expected to be aided as occupiers have to push forward their holiday inventory orders by three months due to the ticking threat of ongoing labor negotiations with East and Gulf Coast Port workers whose contract is set to expire September 30th, the heart of holiday preparation season for Supply Chains. Increases in shifts toward West Coast Port stability could benefit the sublet space in the short-term, and increased volumes to East and Gulf Coast Ports prior to the contract expiration date is expected to force decision-makers to execute on leases or sub-leases earlier than in standard years. Elevated levels of dry-powder waiting to be deployed on both the acquisition, and development side of the industry will continue to carefully plan for hawkish Federal Reserve policy guidance, knowing a surge of competition is also waiting to make up for lost time and transaction activity.
22.8 msf

Q1 absorption is down 60% from the 10-year historical average

The quarterly figure has not been this low since Q1 2012 when only 16.8 msf was posted; however, leasing activity often ramps up as the year progresses, with Q3 and Q4 typically seeing the strongest demand. 


Vacancy is up 3.5% from the low point in the cycle of 4.1% in 2022

The steep climb in vacancy is largely driven by a surge of new supply coming online coinciding with a slowdown in leasing.


Current inventory under development, down from the peak in late 2022 of 6.5%

The number of buildings under construction has doubled from pre-COVID construction volumes. Over the last 20 years, the average percentage of inventory under development hovered at 3.1%. Coming out of the pandemic, the bulk distribution segment of the market above 500,000 sf was the most active size range for developers, leading to the current source of weakness in the leasing market. 


Over half of the current development pipeline is set to deliver by the midyear point

As the supply pipeline has rapidly decreased for the past five quarters, all size segments have pulled back significantly, with the pipeline of bulk distribution sector spaces greater than 500,000 sf at 12% of what it was 12 months ago. This may lead to supply and demand imbalances in certain size segments over the next 18 to 24 months.


Amount the Port of Los Angeles increased its year-over-year TEU activity in the first two full months of 2024

This early increase in activity could drive demand for warehousing and storage in both coastal markets and inland port distribution hubs. A looming September East Coast Port labor contract negotiation could also lead to a rush of demand for precautionary inventory storage and warehousing.

For more information, contact:

  • Director, Industrial / Supply Chain & Logistics Market Intelligence
  • Industrial, Market Intelligence, Strategic Business Advisory

  • Manager, Market Intelligence
  • Industrial, Logistics, Market Intelligence

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