Demand for Industrial Space Shows Signs of a Slowdown

Reporting from NAIOP shows that, like many sectors in commercial real estate and housing, growth is slowing in industrial compared to the soaring performance in 2021, and yet is still making impressive marks. 

Analysts Hany Guirguis, Ph.D., Manhattan College and Michael J. Seiler, DBA, William & Mary write for NAIOP that the usual cast of factors has caused net absorption in the first half of the year, as well, to be “down sharply from 2021’s record pace but still notably higher than in prior years.”

In both metrics, the authors expect the still-hot industrial market to cool, and they forecast that the net absorption rate will continue to decline until it returns to the pre-pandemic trend. 

Demand for New Space Out of Equilibrium

Retailers and logistics firms have shown less interest in leasing or buying industrial space before it is needed, a trend that contributed to higher absorption in 2021, as they see supply chain congestion easing.

Demand for new space still has the markets out of equilibrium, a trend likely to continue for at least several quarters.

Nonetheless, smaller e-commerce firms, and even traditional retailers, “continue to lease more distribution space despite slowing e-commerce growth as more consumers return to shopping at bricks-and-mortar retail. 

“Industrial vacancy rates remain historically low as the ability to supply new space continues to face physical and political limitations in land-constrained markets,” according to the report.