For the data behind the commentary, download the full Q2 2024 U.S. Industrial Report.
Quarterly Net Absorption Rebounds
The U.S. industrial market posted 46.3 msf of net absorption in the second quarter, more than doubling the total registered in the previous quarter. Almost all of the overall absorption recorded nationwide continued to be tied to the delivery of new industrial product with tenants in place.
Over half of U.S. markets tracked by Cushman & Wakefield Research yielded positive absorption in the second quarter, and absorption improved QOQ in 36 different markets. Six markets surpassed 3 msf of quarterly absorption, led by Dallas-Fort Worth (13.8 msf), Phoenix (7.4 msf) and Houston (4.3 msf). Some of the highest pockets of negative net absorption occurred along the West Coast, as Portland, Seattle, Oakland-East Bay, and Los Angeles combined for 9.6 msf of negative absorption in the second quarter.
New leasing activity measured 137.2 msf, which was down slightly (-2.8%) since the first quarter but finished 11.2% higher than the 10-year pre-pandemic average of 126.9 msf. Through midyear, the U.S. has recorded just over 278 msf of new transactions, putting the market on pace to surpass 500 msf for the 10th straight year. Year-to-date (YTD) activity has been driven largely by seven markets that exceeded 10 msf of deal volume. Meanwhile, there were another 11 deals greater than 1 msf signed in the second quarter, which pushed the YTD total to 27. In comparison, 34 such deals were completed throughout last year.
Vacancy Continues to Normalize from Historically Low Levels
Although the national vacancy rate edged higher to 6.1%, the 40-basis-point (bp) increase was the lowest quarterly rise since the first quarter of 2023. This is the highest the vacancy rate has been in almost nine years, but it still stands well below the 10-year, pre-pandemic (2010-2019) average of 7%. New vacant supply delivering to the market remains the main driver of rising vacancy in many markets, while the rate at which sublease space has come online has slowed in the last two quarters. After climbing markedly throughout 2023, the sublease vacancy rate remained flat in the second quarter at 0.6%, and it has only risen by 10 bps since the start of the year. The South region has the highest midyear vacancy rate at 6.9%, largely due to the 98 msf of speculative space delivered since the start of 2024. Meanwhile, the West region has seen vacancy increase by 90 bps QOQ to 6.4%, as occupiers continued to consolidate operations and shed excess space in some markets.
Significant Speculative Delivery Totals Persist While the Composition of the Pipeline Shifts
Another 121 msf of new supply came online in the second quarter, which was 2% higher than the previous quarter but still below the 154 msf per quarter delivered in 2023. Many of the YTD deliveries were speculative (83%), and half were concentrated in the South. There were five markets that yielded more than 10 msf of new completions since the start of the year, including Dallas-Fort Worth and Phoenix, both of which surpassed 20 msf of new industrial deliveries.
The 239.7 msf completed nationwide YTD is down 15% compared to mid-year 2023, and the U.S. is projected to deliver approximately 380 msf of industrial facilities by the close of 2024. After that, with nominal construction starts amid the backdrop of elevated vacancy rates and softer demand, the pipeline will thin out substantially.
The under-construction pipeline fell to a four-year low, with 343.3 msf currently under construction as of the second quarter, down 46% YOY and 14.4% QOQ. As healthy speculative warehouse and distribution delivery totals have persisted since the pipeline peaked in 2022, build-to-suit (BTS) developments have increased their share of the pipeline over the last year. BTS product accounts for 32.3% of the current pipeline and is most prolific in the Midwest, where it represents 71% of the regionwide total. With warehouse completions expected to continue at a steady rate, manufacturing facilities will likely account for more of the pipeline due to their longer construction timelines. As of midyear, there is 36.2 msf of BTS manufacturing product under development, representing 33% of the BTS total.
For the data behind the commentary, download the full Q2 2024 U.S. Industrial Report.
