Supply is Outpacing Demand as New Construction Continues to Deliver
The US industrial market continues to downshift from historic highs in 2021 and 2022. While vacancy is not expected to pass the 20-year average, additional space will be added to the market as a robust construction pipeline continues to deliver. The slowing demand is being driven by low-home sales and the decrease in spending on durable goods. However, overall consumer spending remains strong despite elevated inflation. Nevertheless, the torrid pace of rental rates has slowed considerably with quarter-over-quarter increases in the distribution sector under one percent last quarter. With under construction supply continuing to deliver, new construction starts have pumped the brakes, which should help bring some stability to the market in the next 12 to 24 months.
Industrial Tenant View:
- With demand waning and supply growing, occupiers have a window to negotiate for more favorable lease terms.
- Sublease space entering the market has pushed levels higher than pre-pandemic levels.
- Emerging markets with lower costs such as labor and real estate are becoming increasingly desirable.
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