NAIOP pinpoints 2025 as when the industrial market will start to expand.
It estimates that quarterly net absorption of industrial space will average 14 million square feet per quarter over the next two years, or 62.8 and 49.1 million square feet in 2024 and 2025, respectively.
This forecast represents a relative “cooling” trend following what had been a protracted period of above-average industrial absorption following COVID-era demand shifts that accelerated the need for distribution space to meet consumers’ increased preference for home delivery.
After two years of absorption that significantly exceeded long-term averages, industrial net absorption in 2023 totaled just 93.7 million square feet compared with a record high of 486.6 million square feet of completions.
Such a supply-and-demand imbalance is usually a cause for concern.
“The effect has been to bring balance back to an industrial market that had been substantially undersupplied since 2020,” according to the report.
The national availability rate ended 2023 at 7.1%, significantly above the post-pandemic low of 4.6% seen in the second quarter of 2022, but right in line with the lows experienced from 2015 through 2020.
NAIOP said anecdotal evidence suggests some tenants will seek to take advantage of a softer rental market to expand their footprint more aggressively than in 2023.
Adrian Ponsen, national director of U.S. industrial analytics at CoStar Group, pinpoints mid-2025 as when US industrial net absorption will pick up notably.
“We have seen some positive economic trends in the past six months,” Ponsen tells GlobeSt.com. “US goods imports and inventories have stabilized after being cut during most of 2023. If retail goods spending continues to hold up well, business inventories and US imports will likely revert to their long-term growth trend soon, which will mean more goods flowing through distribution centers across the country.
“However, most industrial tenants will need to see these trends persist for several months before they take a more offensive stance regarding their space needs.”
As an aside, Ponsen said that higher mortgage rates are also keeping home sales very low, weighing on sales by companies that sell furniture, appliances, and building materials and leading to distribution center closures in these categories.
“Those headwinds look set to continue weighing on the market through 2024,” he said.
Clarion’s latest baseline forecast expects that 2023 will be the trough for U.S. industrial net absorption and 2024 could see the industrial vacancy rate peak as market supply falls sharply.
“Our forecast model expects gradual improvements to net absorption which should stabilize above its historical long-term average, averaging 1.6% of stock over the next two years,” Pedro Niño, Senior Vice President, Research & Strategy, Clarion Partners, tells GlobeSt.com.
Demand for Class A warehouses has remained robust, even during last year’s pullback, and construction starts have fallen over the last five quarters which should bring balance to the market, according to Nino.
He said that net absorption is unlikely to reach recent averages because of the unprecedented demand during 2021 and 2022, but with lower expectations for a hard landing, and now that the Federal Reserve has signaled an end to rate hikes, some uncertainty should be removed from the market, particularly for large institutional occupiers that tend to make leasing decision with longer-term views such as population and consumption shifts, supply chain optimization and resiliency, and the need for well-located modern stock.
Source: “Industrial Market Will Resume Expansion in 2025, Experts Say“
