The vacancy rate for U.S. industrial properties has risen another half a percentage point since the end of last year, as construction completions have dropped 28% from the fourth quarter of 2023, according to the latest research from industrial real estate firm Cushman & Wakefield.
Overall industrial vacancy rate—which includes real estate for warehouse/distribution, manufacturing, flex, and office services—rose another 60 basis points since the close of 2023 to 5.8%. That puts it on track to continue a return to the 10-year (2010-2019) pre-pandemic average of 7%.
The change comes as the development pipeline is significantly shrinking, with a 40% annual decline due to fewer healthy delivery totals coupled with a marked pullback in groundbreakings. According to Cushman & Wakefield, this trend will likely continue throughout the remainder of 2024 amid the higher interest rate environment, setting the stage for fundamentals to quickly tighten on the other side of the supply wave.
“We continue to see the industrial sector adjust to market conditions, returning to pre-pandemic norms,” Jason Price, Americas Head of Logistics & Industrial Research at Cushman & Wakefield, said in a release. “The under-construction pipeline has now fallen for the sixth straight quarter and is down 10% quarter-over-quarter and just under 40% annually.”
Digging into the details, quarterly new leasing activity remained healthy throughout the first quarter with 128.7 million square feet (msf) of transactions completed, 3% higher than the 10-year pre-pandemic (2010-2019) average. However, it is taking longer for larger deals to transact due to economic uncertainty, cost containment, and occupiers taking advantage of more options out in the market, the report said.
Overall, those trends are leading to lower warehouse rents on a national average. Asking rent growth has continued to moderate across many markets and some are seeing softening amid the higher vacancy rates. The U.S. average asking rental rate was flat at $9.73 per square foot (psf) compared to the previous quarter and the annual growth rate has dipped to 6%. As asking rent declines across many of the West region markets persisted throughout the first quarter, the Northeast region finished the quarter as the priciest ($13.68 psf) and has seen a 9.2% annual increase in rents, a regional high.
