U.S. industrial market report

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.