The vacancy rate for industrial properties in the U.S. in the second quarter rose to its highest point in nine years, rising 40 basis points to hit 6.1%, according to data from commercial real estate firm Cushman & Wakefield.
However, developers also said that absorption rates—the speed at which new properties sell—doubled in the same time frame, with 46.3 million square feet (msf) of space reflecting “healthy market fundamentals.” Chicago-based Cushman & Wakefield defines industrial real estate as properties including real estate for warehouse/distribution, manufacturing, flex, and office services.
“Although vacancy has continued to climb, it remains well below the 10-year pre-pandemic (2010-2019) average of 7%,” Jason Price, Americas Head of Logistics & Industrial Research at Cushman & Wakefield, said in a release. “Despite the rise in vacancy, industrial markets are showing increasing levels of demand after a sluggish Q1. New supply is leveling off as developers wait for the market to catch up – we expect that vacancy will peak early next year at 6.7% as the markets stabilize.”
The increased vacancy also cooled off growth rates for rent, as asking rent growth dropped to 3.7% year-over-year nationwide, fueled by the Northeast (+5.3%) and South (+2.9%) regions, the firm said.
Despite those trends, new construction deliveries—the completion of building projects—remained “healthy” with 121.1 msf of new product completed in the second quarter, on par with the previous quarter. This pushed the year-to-date total to 239.6 msf, the second-highest midyear total on record, 84% of which was on a speculative basis. The South region continues to account for the highest share of new deliveries (48.3%) as markets such as Atlanta, Dallas/Ft. Worth, Savannah and Houston continue to deliver large amounts of new industrial space.
But construction starts remain relatively muted in Q2, although up slightly compared to the first quarter. The under-construction pipeline fell to its lowest level (343.3 msf) since midyear 2020 (334.8 msf). The pipeline has declined by 14.4% since Q1 and is down 46% from one year ago. The South (-118%) and Midwest (-99%) regions posted the sharpest pipeline declines during the same period.
“Industrial markets continue to show strength and resilience, even as they adjust and level-set following the pandemic boom,” Price said. “As development slows to meet demand, and absorption catches up to supply we will see the markets find balance.”
