For the First Time in Three Years, Industrial’s Vacancy Rate Exceeds 5%

According to Cushman & Wakefield’s Q4 industrial report, the industrial vacancy rate crossed the 5% threshold after increasing by 60 basis points to 5.2%. This is due to dampened demand and speculative building completions continuing at a robust rate.

Although it is still 120 basis points below the long-term 15-year average of 6.4%, the rate has not been this high since Q3 2020. While the new development pipeline has outpaced demand, Jason Price, Head of Logistics & Industrial Research at Cushman & Wakefield, stated in prepared remarks that he is “clearly” seeing indicators that construction is slowing in reaction to market circumstances and moderated absorption totals.

“Leasing velocity remains steady but occupiers continue to shed excess space in some markets, leading to slower growth,” Price said.

In 58 out of the 83 markets that Cushman measures, absorption was positive. Nineteen of those saw occupancy gains over one million square feet. Houston (6.4 msf), the PA I-81/I-78 Corridor (4.9 msf), the Inland Empire (3.5 msf), and Las Vegas (3.2 msf) were the top four.

According to Price, the combination of growing vacancies and muted demand caused rental growth to slow down as well. It moderated to 10% annually, marking the fifth consecutive quarter that it did so.

The Northeast saw the highest rate of rent growth, at 16.1% annually. The annual growth rates for the remaining three regions ranged from 5.5% to 6.6%.

“We expect rent growth throughout most of the country to continue to slow in 2024 as we previously forecast,” Price said.

By late 2024, Savills anticipates reduced supply and possibly lower vacancy rates.

The study states that new lease activity stayed consistent at 133.8 msf, decreasing by just 2% from the Q3 total.

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