Cushman & Wakefield Releases Q4 U.S. Industrial Stats
CHICAGO – With demand muted and speculative construction completions persisting at a healthy rate, the industrial vacancy rate ticked higher by 60 basis points (bps) to 5.2%, according to Cushman & Wakefield’s Q4 industrial report.
Although this is the first time the rate has surpassed the 5% mark since Q3 2020 - it remains 120 basis points (bps) below the long-term 15-year average of 6.4%.
“While the new development pipeline has exceeded demand, we are clearly seeing signs that construction is slowing in response to market conditions and tempered absorption totals. Leasing velocity remains steady but occupiers continue to shed excess space in some markets, leading to slower growth.” said Jason Price, Head of Logistics & Industrial Research at Cushman & Wakefield.
On the market level, 58 of the 83 markets tracked by C&W reported positive absorption in the fourth quarter, 19 of which surpassed 1 msf of occupancy gains, led by Houston (6.4 msf), the PA I-81/I-78 Corridor (4.9 msf), the Inland Empire (3.5 msf), and Las Vegas (3.2 msf).
New deliveries totaled 156.3 million square feet (msf) in the fourth quarter, down 9.8% from the record high achieved in Q3 (173.2 msf). This was the second-highest completion total on record, fueled mainly by vacant, speculative deliveries across all four regions. This also marked just the fourth time in history the U.S. delivered more than 150 msf quarterly. For the year, there were 609.6 msf of new industrial product delivered nationwide, surpassing the previous record in 2022 by 17.6%.
Overall net absorption remained muted in Q4 with 41.1 msf of space absorbed, down from the 52.5 msf recorded in Q3. Year-to-date (YTD) net absorption finished at 224.3 msf, which is in line with the pre-pandemic 10-year average (2010-2019) of 224.8 msf. Earlier this year, Cushman & Wakefield forecasts predicted annual U.S. net absorption at 218.9 msf, just 2.5% lower than what was registered.
Throughout 2023, net absorption was propelled by new industrial product delivered with tenants in place – either build-to-suit or speculative pre-leased space.
New leasing activity remained steady at 133.8 msf, down just 2% since the Q3 total. While quarterly demand fell in the south region in Q4, the other three regions recorded increases in new leasing activity throughout the fourth quarter. Meanwhile, the U.S. industrial market yielded 588 msf of YTD new leasing activity in 2023, the fourth strongest year on record. This was the eighth straight year in which the nation posted more than 550 msf of new transactional volume.
“As expected, amid the backdrop of rising vacancies coupled with tempered demand, asking rental growth continued to slow in Q4. On a quarterly basis, the U.S. overall industrial rental rate ticked higher by 0.5%, down from 1.1% the previous quarter. On an annual basis, rent growth moderated to 10%, the fifth straight quarter in which the annual rent growth rate declined. We expect rent growth throughout most of the country to continue to slow in 2024 as we previously forecast,” said Price.
The northeast region continued to see rents rise at a healthy rate year-over-year at 16.1% while the other three regions posted annual growth rates from 5.5% to 6.6%.
