Navigating the Current Industrial Real Estate Landscape for Commercial Occupiers

 

After several quarters of historic construction starts and deliveries, the US logistics market is dealing with an increase in availabilities. The result has been a slowdown of record rent growth, increased vacancies and a dramatic decrease in new construction. The pandemic created a perfect storm of increased consumer demand, disrupted supply chains, and an overall lack of warehouse and distribution facilities. Companies pivoted from just-in-time to just-in-case inventory strategies, triggering many organizations to hurriedly lease up logistics space to meet demand and secure needs for current and anticipated growth, creating a sharp increase in rates. As the pandemic eased, demand for larger spaces (over 500,000 square feet) have begun to weaken, as companies look to right-size their warehouse/ distribution requirements. Coupled with an abundance of new deliveries has resulted in an increase in availabilities and sublease space.
 

Key Trends in Lease Signings

 
Overall lease deals for industrial logistics space increased between 2019 and 2021 before falling back to pre-pandemic levels. Deals over 1,000,000 square feet increased dramatically in 2020 and remained elevated through 2022. Much of this was connected to increased consumer demand created during the pandemic and disrupted supply chains causing many companies to increase their warehouse/distribution needs. More recently, there has been more demand for smaller spaces as companies look to right-size their supply chain portfolios. An uncertain economic outlook and a frenetic pace of signed deals during 2021 and 2022 aided in slowing down the overall number of signed leases across all space sizes in the past 18-months.
 

 

 

Lease activity for spaces between 500,000 and 999,999 square feet has seen a marked decline, while deals over 1 million square feet remain steady, though reduced from their pandemic peaks. 

 

Availability and Market Conditions

Recent data shows a 54.6% increase in available logistics space across the largest U.S. industrial markets since 2021. This availability surge, driven by both new construction and shifts in tenant demand, is presenting occupiers with more options and potential leverage in negotiations. 

 

 

 

warehouse availability

 

 

The total amount of available space increased in 9 out of the top 10 industrial logistics markets since the start of 2021. The most active markets in terms of new deliveries have seen the largest increase in the square footage of available space. Los Angeles, the Inland Empire, and New York markets have doubled the amount of available logistics space, while Houston has stayed relatively flat.

Top 10 Industrial Logistics Markets: Under Construction

New industrial logistics construction peaked in 2022. Starts for 2023 were comparable to pre-pandemic levels. In particular, the number of large projects, over 1,000,000 square feet, has fallen sharply. Atlanta has three available spaces over 1,000,000 square feet under construction, while the Chicago market has two. Dallas leads with the most availabilities in the smaller range (between 100,000 and 249,999 square feet), with 28 availabilities. Meanwhile, the Philadelphia has the broadest offering of availabilities of logistics spaces by size, with 13 spaces available in the 250,000 to 499,999 square foot range and 7 spaces in the 500,000 to 749,999 square foot range. n the 500,000 to 749,999 square foot range.

 

 

 

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Impact on Industrial Occupier: 

For tenants, these market conditions create new opportunities:

1. Negotiating Power: Increased space availability means landlords may be more flexible on lease terms, concessions, and rental rates. This is particularly true for spaces over 500,000 square feet where demand has waned.

2. Long-Term Planning: With the number of available spaces growing, especially in key logistics hubs like Dallas and the Inland Empire, businesses have a broader selection of properties to choose from. This allows tenants to be more selective, aligning their space needs more closely with future growth or contraction plans.

3. Under Construction Spaces: Markets like Dallas and Philadelphia also offer significant inventory in under-construction spaces, particularly for those seeking brand-new, state-of-the-art facilities. This includes a robust pipeline of mid-sized spaces, which can provide the flexibility many businesses now seek. 


Conclusion

As we move into 2025, tenants in the industrial sector should consider the broader trends shaping the US logistics market. With more options available, occupiers will find more landlords willing to negotiate on rates, terms, and concessions. This is an opportune time to revisit space requirements and lease strategies to ensure alignment with long-term business goals. For businesses occupying commercial industrial space, being proactive and understanding these market dynamics will be key to making strategic real estate decisions in the year ahead.

 

For a more in-depth analysis of availability for warehouse/ distribution spaces download a PDF copy of the report, here. 

 

 

 

 

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