U.S. industrial market report

2023 will be marked as one of the most resilient years in industrial sector history. Despite the record amount of new space hitting the market resulting from nearly 700 million square feet (msf) in the construction pipeline peak in late 2022, the sector retained positive net absorption every quarter, and was only slightly down from pre-COVID averages. 2024 is positioning to be a return to normalcy when it comes to overall leasing, and the first month of the year has experienced an uptick in pre-leasing activity that will likely result in executed leases in the second half of 2024. A significant amount of rollover demand is also expected in the second half of this year, as tenants that locked into space just prior to or at the beginning of COVID will be entering their negotiation phase on whether to renew or explore other space options, just as new deliveries become extremely limited.

Following the first half of 2024, the total construction pipeline is expected to fall below 150 msf, as a now six-quarter disruption of new groundbreakings will severely limit new space options for tenants seeking space in the second half of 2024, and the beginning of 2025. Industrial construction costs continue to rise and remain at historic levels, diverging from overall construction material costs which dropped in early 2023. These historic construction costs will limit the ability for currently vacant new deliveries to demise down and compete with smaller buildings, a theme that is not expected to have a substantial impact on current inventory and competition. Continued focus on diversifying supply chain networks, and reshoring/near-shoring will continue to drive new demand for industrial space in the foreseeable future, with East Coast and Mexican ports benefiting from increased volumes as new regional support networks continue to emerge and transition East Coast port markets.