Demand for industrial real estate in the US has declined slightly, according to new numbers released this week by Cushman Wakefield.
While demand still outpaces supply on a year-to-date (YTD) level, the third quarter saw industrial supply has outpaced demand for the first time in eight quarters with overall net absorption down 18.1 percent in Q3, compared to midyear, putting YTD absorption 10.4 percent behind last year’s pace.
Vacancy ticked higher by 10 basis points to 3.2 percent as new leasing activity slowed and speculative construction completions swelled.
“As expected, the current economic climate coupled with historically tight market conditions across many markets, new leasing activity was more tempered in comparison to the previous seven quarters when it exceeded 200 million square feet (msf),” said Jason Price, senior research director for Cushman & Wakefield.
Construction completions reached a recent historical high with over 148 msf of industrial deliveries in Q3, 35.2 percent more than the Q2 total. Construction completions are also up 35.2 percent YTD compared to YTD Q3 2021. Almost 70 percent of the YTD completions were on a speculative basis.
The pipeline of projects under construction reached another all-time high, surpassing last quarters record with 716.9 msf of industrial product under development, 81 percent of which is on a speculative basis, while 23.8 percent of the national under-construction total is preleased.
Quarterly rent growth continued at a modest pace, up four percent since midyear but have risen 22 percent year-over-year (a record growth number) – led by the Northeast and West Regions.
“Market conditions are coming off of historically high demand, record low vacancy and rental rates,” said Price.
“While the market remains hot, there is some easing of the pressure through both changing economic conditions and increase in new supply that struggled to come to market during the height of the pandemic.”