Industrial Showed Signs of Slowing in Q4

Industrial rents showed signs of moderation in the fourth quarter, with the average asking rates ticking up just one percent from Q3.

According to a new report from Cushman & Wakefield, just five of the 81 markets tracked by the firm’s researchers posted double-digit quarterly increases, but there were also bright spots: Charleston, Inland Empire, Phoenix, and Miami all recorded annual gains of 40% or higher, while coastal and port/population-proximate markets continued to common premium pricing.

Construction starts also showed signs of slowing, though the overall pipeline remains robust. Cushman & Wakefield researchers note that 83% of the product under construction are speculative, with 21.3% of that pre-leased by tenants. Analysts predict supply to continue to outpace demand and suggest that the high number of projects being built on a speculative basis suggest a risk of overbuilding in certain markets in the near-term.

“In the face of an increasingly difficult economic climate and the Fed pursuing additional hike rates, we anticipate construction starts to slow down,” the report notes. And “with most of the total slated to deliver throughout 2023, it will likely push the overall vacancy rate higher over the next few quarters,” they say.

The vacancy rate clocked in at 3.3% nationally in Q4, 20 basis points above Q3′s number. Cushman experts predict the overall vacancy rate to push even higher this year as the strong construction pipeline delivers into a weaker economy, and say the market “will remain tight” this year and will push rents up by the high single digits. Supply is predicted to catch up to demand by 2024, at which point rent growth is expected to moderate back Ito the 3% range.

“Although overall tenant demand should remain positive, expect it to continue to decelerate as choppier economic conditions emerge and consumer spending continues to rotate back towards services,” Cushman analysts write in the report. “Some tenants may opt for a wait and see approach during the year ahead due to economic uncertainty, while others may find opportunities to expand their footprints as new supply delivers vacant in some cases.”