For the first time in three years, the industrial vacancy rate exceeded 5% in the fourth quarter, and Colliers’ Craig Hurvitz predicts that this trend will hold until 2024 as new supply outpaces demand.
According to him, the vacancy rate is expected to peak at 6.5% in the second half of 2024, although rates may rise as high as 10% in areas where there is a substantial proportion of new product compared to the total industrial inventory.
He noted that more rent increase is anticipated in most markets in 2024, albeit at a more moderate pace, closer to historical averages of between 4% and 8%. Rising vacancies, he added, won’t necessarily translate into lower rentals.
Filling big box space in particular has grown more challenging, according to Adrian Ponsen, national director of CoStar Group’s U.S. industrial analytics. Based on CoStar projections, 390 million square feet of unleased industrial space are currently under construction nationwide and are expected to be completed, which would increase vacancy even further.
According to Ponsen, industrial property owners continue to reap significant benefits in terms of rent because many of the in-place leases that are about to expire are four or five years old on average. These leases are also being renegotiated and renewed at new rents that are more than 40% higher after accounting for the significant rent gains that occurred during the pandemic.
Lease expirations such as those will still yield profits in 2024.
