2024 could be the third-highest year for industrial big-box leasing, CBRE projects. Even though a spate of new construction in 2023 brought a record 413 million SF to market, it expects that abundant supply to be short-lived.
“Investor sentiment has significantly improved from last year as industrial operating fundamentals remain solid and the credit market has stabilized,” said Chris Riley, president, U.S. Industrial & Logistics, Capital Markets. “The increased demand is evident from purchase bid sheets that are three times deeper than those in Q4 2023.”
Industrial facilities in the U.S., Mexico and Canada had higher taking rents in 2023 than in years past. Rent growth was sturdy at 15.9%, though below the 25.1% growth rate in 2022, CBRE reported in its 2024 North American Industrial Big-Box Review and Outlook. Rent grew despite a direct vacancy rate of 6.6% — double that of 2022 – and a 15.8% slump in leasing activity in 2023. North America’s lowest vacancy rate (0.3%) was recorded in Mexico City, down from 1% in 2022.
Strong leasing resulted in 1.9 million SF of positive absorption, with food and beverage companies taking up more than half of available space. “Despite record low vacancies, only 3.3 million SF is under construction, with 57% preleased,” the report noted.
The most active occupiers of U.S. industrial space were general retailers and wholesalers, which accounted for 36% of all lease transactions – squeaking past third-party logistics (3PL) providers with 35%. There was also increased demand from automobile, tires and parts, and building materials and construction companies. In 2024, CBRE predicts that food and beverage and online fulfilment companies will step up their leasing activity. The survey focused on big-box warehouses of 200,000 SF or more, which CBRE considers crucial for extensive national and international product distribution.
“Leasing demand was driven by a desire to boost supply chain resilience, increase access to growing population centers, modernize space to accommodate increased automation and support continued e-commerce growth,” the report found.
The trend is expected to continue this year, shifting the focus from the need for safety stock to a stronger emphasis on storing inventory closer to the point of sale, said John Morris, president, America’s Industrial & Logistics. This should benefit both mid-size and big-box facilities as hub-and-spoke fulfillment models expand, he added.
Demand was also helped by the fact that this year cap rates for value-add and core+ offerings have compressed below debt neutrality, Riley noted. As demand for investment offerings exceeds current supply, “bid/ask spreads have disappeared as pricing for many deals is exceeding projections.”
After the boom in big-box construction in 2023 that brought a record 413 million SF to market, building contracted to just 208.4 million SF later in the year. Despite the cutback, higher vacancies are expected in 2024, leading landlords to offer concessions while supply exceeds demand. However, CBRE projects lease transaction volume to increase by 5% this year. “The current development slowdown offers opportunities for occupiers to secure available space, leading to a gradual decrease in vacancies over time,” it noted, with more “landlord friendly” conditions predicted for 2025.
By lease transaction volume in 2023, Southern New Jersey/Eastern Pennsylvania led the nation with 33.4 million SF taken up. Other regions in the top 10 were Dallas-Fort Worth (32.4 MSF), Inland Empire (31.2 MSF), Chicago (29.5 MSF). Atlanta (16.9 MSF), Indianapolis (15.3 MSF), Savannah (13 MSF and the nation’s top growth market), Central Valley (11.7 MSF), Memphis (11.6 MSF), and Louisville (11.5 MSF).
Source: “Industrial Big Box Leasing Is On a Tear“
