Demand for warehouse and industrial space continued to slump in the third quarter as the overall national industrial vacancy rate edged higher, climbing 30 basis points (bps) to 6.4%, according to the latest research by Cushman & Wakefield.
Although vacancy rose again, it increased by the lowest quarterly gain in vacancy since Q4 2022. The primary cause of the rising empty space was “vacant speculative deliveries,” as developers flooded the market, the report said.
“Industrial vacancy rates remain below the 10-year pre-pandemic average of 7% as new supply slowed and overall absorption remained soft, but positive,” Jason Price, Senior Director, Americas Head of Logistics & Industrial Research, said in a release. “We expect that net absorption will more than double in 2025 as leasing activity accelerates with greater economic certainty.”
Through the first three quarters of 2024, the strongest absorption totals of new real estate were seen in Dallas/Ft. Worth at 18.8 million square feet (msf), Houston at 17 msf, Phoenix at 15.1 msf, and Savannah at 7.4 msf. Conversely, the Los Angeles, New Jersey, Oakland/East Bay, Reno, Seattle, and Portland markets have yielded the highest amounts of negative absorption year to date.
Speculative developments continue to dominate the delivery landscape, accounting for 83% of the YTD new supply total. Expect Q4 deliveries to moderate a bit further nationwide as the construction pipeline has dwindled substantially over the last two years.
The average asking rental rate for industrial space exceeded the $10 per square foot (psf) level for the first time in history at the close of Q3 at $10.08 psf. This marked a 4.3% rise year-over-year as some markets continue to see rents tick higher despite softer fundamentals than the past three years.
“Industrial construction is in the final stages of adjusting to the more normalized levels of demand and absorption and we expect to see markets stabilize in 2025,” said Price. “The pipeline has shrunk to a low (309.3 msf) not seen since year-end 2018 and will continue to dissipate into early next year as construction starts remain muted. We anticipate demand reaccelerating in the second half of next year amid softer delivery totals, coupled with healthy leasing totals.”
