2022 Q4 U.S. industrial market overview

Slower growth does not necessarily equate to negative growth.  While there have been offsetting signals in the U.S. economy at the end of the year, industrial leasing market fundamentals have remained stable, with aggregate vacancy increasing only 10 basis points to 4.2%.  As the Federal Reserve pushed up interest rates, the desired effects seem to have been borne out, with core inflation (less food and energy) coming in at 5.7% for the 12-month period ending in December.  At the same time, broader supply chain issues have started to loosen over time, but are not yet sufficiently resolved.  However, reductions in consumer purchasing power and a re-adjusting of capital markets assumptions have reduced Q4 activity.  Annualized net absorption fell by 13.7% while investment sales were down 20.3% from last year.

Current market vacancy, including sublease availabilities

Despite ticking up 10 basis points since last quarter, overall vacancy is still 70 basis points lower than the last cycle, ending in the second half of 2018.

Composition of sublease vacancy within major U.S. markets

While increasing 12.9% from the third quarter, new sublease listings remain a minimal factor in the greater U.S. industrial market, and could be a mechanism for savvy landlords to recapture and re-lease direct space in an otherwise consistently tight market.

Average hourly earnings of all employees, transportation and warehousing sector

From the beginning of the COVID-19 pandemic until now, wages have increased for nearly three years – but food and fuel inflation have dampened much of the impact on the supply chain industry.

Proportion of space currently under construction relative to the existing U.S. market

The amount of space currently in the development pipeline far exceeds historical norms, which over the last ten years averaged roughly 2.6% of existing inventory, and could bring additional vacancy back to an otherwise space-constrained sector.

Increase in average asking rent over the fourth quarter 2021

Rental pricing remains volatile and in constant flux in the current economic environment, with many markets experiencing wide shifts based on asset quality and availability within target submarkets.

While investment activity is down over last quarter, interest continues to be robust

The industrial sector continues to draw interest from major investors, both foreign and domestic, especially as current interest rate shifts play out and a “new normal” settles in.
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