Construction starts in the industrial sector have slowed dramatically this year as both tenant demand has waned and hurdles to new construction activity have grown, according to the “Q1 U.S. Industrial Construction Overview” report from Cushman & Wakefield.
The drawback follows a frantic, post-pandemic rush to add new real estate in the areas of warehouse/distribution, manufacturing, flex, and office services. But that trend finally began to slow in the fourth quarter of 2023, and has now cooled off even further.
“After a pandemic-infused, over-stimulated economy pushed consumer demand for durable goods to record levels in 2021 and 2022, industrial facilities were constructed at a feverish pace to meet occupier demand. Over 1.8 billion square feet (bsf) of industrial product has been delivered since the beginning of 2020, more than was constructed in the previous decade,” Jason Price, Senior Director, Americas Head of Logistics & Industrial Research, said in a release.
The report shows that as economic uncertainty has persisted amid elevated inflation and high interest rates, occupier demand has moderated, leaving 52% of the newly built facilities in 2023 still available for lease and causing vacancy rates to increase nationwide. As a result, new starts have slowed dramatically, and the under-construction pipeline has been shrinking—a phenomenon that will continue in 2024.
The industrial pipeline peaked in Q3 2022 at more than 716 million square feet (msf) but has fallen each quarter since. On an annual basis, the pipeline has dwindled by 33.7%. This is due to the record pace of new deliveries in the second half of 2023, coupled with the pullback on construction starts.
“Although tenant demand has slowed, occupiers continue to seek modern logistics space for efficient usage. As a result, 75% of all net absorption since the start of 2021 has occurred within facilities built over the last three years. In 2023 alone, almost all the 224 msf of recorded net absorption was tied to newly built, build-to-suit or pre-leased speculative product,” David Smith, the company’s Head of Americas Insights, said.
