Industrial real estate vacancy hits highest rate in nine years

The vacancy rate for U.S. industrial properties rose to a nine-year high in the second quarter, rising 40 basis points to 6.1 percent, according to data from commercial real estate firm Cushman & Wakefield.

However, the developers also said that absorption rates – the speed at which new properties sell – doubled over 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, flexibility and office services.

“While job vacancies have continued to grow, they remain well below the 7% average over the 10 years before the pandemic (2010-2019),” said Jason Price, head of Logistics and Industrial Research for the Americas at Cushman & Wakefield. in a statement. “Despite the increase in vacancies, industrial markets are showing an increasing level of demand after a sluggish Q1. New supply is stabilizing as developers wait for the market to catch up – we expect vacancy to reach 6.7% early next year as markets stabilise.”

Vacancy growth also dampened rent growth rates as asking rent growth fell to 3.7% year-on-year nationally, fueled by the North East (+5.3%) and South (+2.9%), the firm said.

Despite these trends, new construction deliveries – the completion of construction projects – remained “healthy,” with 121.1 sq ft 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 mid-year total on record, 84% of which was on a speculative basis. The South region continues to have the largest share of new deliveries (48.3%), in markets such as Atlanta, Dallas/Ft. Worth, Savannah and Houston continue to deliver large amounts of new industrial space.

But construction starts remain relatively subdued in Q2, although they rose slightly from the first quarter. Pipeline under construction fell to its lowest level (343.3 msf) since mid-2020 (334.8 msf). Pipeline was down 14.4% from Q1 and down 46% from a year ago. The South (-118%) and Midwest (-99%) regions saw the steepest pipeline declines over the same period.

“Industrial markets continue to show strength and resilience, even as they adjust and stabilize following the pandemic boom,” Price said. “As development slows to meet demand and absorption catches up with supply, we will see markets find balance.”