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.

National vacancy rate upticks to highest point since 2013

Industrial net absorption remained positive to start 2024 but continued to decline due to global economic and financial headwinds and record levels of new construction deliveries. Peak deliveries have hit nearly every market nationally and will largely be completely delivered by the end of 2024. The decline in deliveries will continue to allow markets to digest the excess space which has flooded the sector for three quarters now and looks to be timed well with increasing occupier requirements that are likely to translate to increased gross leasing in 2024.


First quarter gross leasing below pre-COVID average

Overall leasing volume for the start of 2024 was substantially smaller when compared historically, however pre-leasing activity demand remains active throughout the U.S. industrial market, up-ticking starting in the third quarter of 2023. A key to remember is leasing is a laggard indicator, and the observed leasing slowdown is perfectly in line with the extremely concerning slowdown in Port activity experienced to start 2023. Tenant decision-making processes were focused 6-12 months ago and are now translating to the market. 

 The first month of 2024 has experienced more users actively entering the pre-leasing process, indicating that leasing activity is aligning for increases in 2024


Construction pipeline expected to deliver by end of fist half of 2024

New construction groundbreakings topped out in the third quarter of 2022, and very limited replacement in the construction pipeline have been experienced in 2023 and the start of 2024. After topping out at nearly 700.0 msf in 2022, we expect the overall construction pipeline to fall to under 150 msf by the end of the first half of 2024. We are closely monitoring the market shift that decreasing groundbreakings will have on new space availabilities in six to nine months, as tenants looking for newly constructed space may have limited optionality relative to prior years.

For more information, contact:

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

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