A 4.1% increase in the nation’s overall industrial vacancy rate in Q2 2023 is partly due to the number of speculative new industrial space developments now coming to market, according to an analysis by Cushman & Wakefield.
A return to normal in companies’ space requirements after historically high demand in recent years also contributed to the 60 bps increase in vacancies, the report stated.
Overall, the report paints a picture of an industry adjusting to a less frenetic economic environment rather than one under severe pressure. “We are now seeing the impact of the robust pipeline of product coming to market and easing pressure on markets that were at historically low vacancy rates through the pandemic,” noted Jason Price, senior research director, U.S. Industrial and Logistics.
Even though the report foresees generally softening market conditions, it noted that new leasing activity remained healthy while renewal activity more than doubled.
Over 139.5 million SF of new industrial space was delivered in Q2 2023 – the third highest quarterly total on record – with the South accounting for 46% of the U.S. total. Since the start of the year, 273.2 million SF came on line nationally – of which 83% was built on a speculative basis. However, for the third consecutive quarter, the pipeline of projects under construction shrank, dipping 12.7% since its Q3 2022 high water mark.
Absorption fell in many markets in the second quarter, dropping nationwide to 45 million SF. But overall absorption of 116.4 million SF was only slightly below the three-year average of 133.9 million SF for 2018-2020. Indeed, 21 markets recorded more than 1 million SF of net growth during the quarter and six scored more than 3 million SF. They were the Pennsylvania Industrial Corridor, Savannah, Columbus, Dallas, Houston and Las Vegas.
Vacant sublet space rose 38% quarter-over-quarter to a total of 66.8 million SF. Price said this contributed to the lower absorption totals during the first half of the year.
New leasing activity remained healthy in the second quarter of 2023, with 141 million SF of deals signed, just 9% below first quarter levels. The total of 296 million SF leased in the first half matched the average for the same period in the years 2018-2020, with 600 million SF predicted by year-end. Renewals more than doubled from Q1 2023 to Q2.
Asking rents also rose 4.6% in this period to $9.59 per SF, with the Northeast and West seeing even stronger gains of 26.2% and 13.1% respectively. The report attributes much of the increase to higher-priced, premium vacant new construction. However, pre-leasing activity remained soft.
“Demand for space continues to come from across a wide variety of industrial and warehouse users giving us confidence that market conditions will stabilize at a more balanced lcvel,” Price said.
Source: “Inside Industrial’s Rising Vacancy Rate“