For the data behind the commentary, download the full Q3 2024 U.S. Industrial Report.
Leasing Activity Remains Above Pre-pandemic Levels
While some occupiers’ “wait and see” approach to space needs is dampening demand from recent record highs, third-quarter leasing activity (139.6 msf) was 8% higher than the 10-year pre-pandemic average and nearly equal to last year’s total (140.9 msf). Since the start of 2024, 433.6 msf of new deals have been completed, a slight decrease of 6.7% compared to the first three quarters of 2023. However, 32 markets posted YTD increases in new leasing volume, with 22 markets posting improvements of 10% or higher. Many larger occupiers continued the flight-to-quality trend, with 65% of the square footage leased YTD by tenants with 100,000 square feet (sf) or more occurring in warehouse facilities built since 2020. These newer, high-quality assets have captured nearly two-thirds of leasing activity, despite representing only 13% of total inventory.
Net absorption was modest in the third quarter, as some large occupiers continued to shed unneeded space due to cooling consumer demand and shifting of inventory strategies. With 29.4 msf in the third quarter, net absorption was down 35% quarter-over-quarter (QOQ) but was 40% stronger than the first quarter of 2024. As in recent years, much of the positive net absorption is tied to the delivery of either build-to-suit or preleased speculative developments, continuing the trend that new, high-quality product continues to outperform. Eight markets yielded more than 5 msf of YTD net growth, and 60% of the industrial markets recorded positive absorption during that time. Meanwhile, eight markets accounted for the majority of negative YTD absorption, led by Los Angeles, Oakland/East Bay, Northern New Jersey and Seattle.
Vacancy Levels Normalize Further
Both vacant speculative deliveries and some additional sublease vacancies pushed the U.S. industrial vacancy rate up from 6.1% in the second quarter to 6.4% in the third. Although higher than the lows posted in 2021 and 2022, the vacancy rate remains below pre-pandemic averages, at 7%. Of the 84 markets tracked by Cushman & Wakefield, 48 had vacancy rates at 6% or lower at the close of the quarter. However, two-thirds of U.S. markets experienced QOQ increases in vacancy rates. While vacant sublease space continued to tick higher nationally, the bulk of new sublease vacancies were concentrated in a handful of markets, led by Los Angeles, Phoenix, Chicago and the Inland Empire.
Despite cooler demand and rising vacancy rates, the U.S. average asking rental rate increased by 4.3% YOY to $10.08 per square foot (psf), surpassing the $10 psf mark for the first time in history. While rent growth has moderated in 2024 compared to the double-digit gains of 2022 and 2023, some markets continue to report robust gains. Of the 84 markets tracked, 58 reported YOY rent growth, and 12 reported rent growth of 10% or higher. Conversely, 26 markets reported annual rent declines, with the largest decreases mostly occurring in markets on the West Coast.
Construction Pipeline Thins Out
Another 90 msf of new industrial facilities were delivered in the third quarter, marking the first time quarterly deliveries fell below the 100-msf mark since the first quarter of 2022. Speculative construction continues to dominate, accounting for 83% of the 335.8 msf of YTD deliveries. After the current wave of supply is delivered, there isn’t much on the other side. As of the third quarter, only 309.3 msf of industrial product is under development, the lowest level since 2018. One year ago, 29 markets had at least 5 msf of industrial developments underway. Now, only 18 markets have pipelines exceeding 5 msf. This sharp drop in new construction sets the stage for vacancy to erode and rent growth to accelerate more meaningfully in the outer years of our forecast horizon (2026-27).
For the data behind the commentary, download the full Q3 2024 U.S. Industrial Report.
