​Despite Q1 Bump, Industrial Vacancy Rate Remains at Historic Lows

The industrial vacancy rate ticked up for a second consecutive quarter, according to Cushman & Wakefield, but remains historically low – 70 bps below the five-year quarterly average and 170 bps lower than the 10-year average.

The Q1 report measures it at 3.6% and many markets still sit below 3%. Deals are still getting done.

Jason Tolliver, executive managing director and co-lead of Americas Logistics & Industrial Services at Cushman & Wakefield, said in prepared remarks, “Given the voracious pace of growth the past two years and some timidity tied to a more uncertain economic outlook, deals are taking a bit longer to get done, but they are getting done and I remain upbeat on the outlook.

“We continue to see a diverse mix of tenants in the market seeking space and that bodes well for future leasing activity. I think we’ll see a more normalized market than the frenzied pace of the past 24 months with industrial demand shifting back to more sustainable levels as the market powers forward.”

Rent growth rose by another 3.5% since Q4 2022 and has cranked up by 17.2% from one year ago, led by solid returns (22.4%) in the Northeast over the past year.

Completions are outpacing construction starts, according to the report, after the under-construction pipeline declines modestly (-3.0% since year-end 2022).

“Construction starts are anticipated to further slow as the year progresses under the current economic climate,” Cushman & Wakefield forecasted.

Of the 663.3 million square feet of industrial product under development, 84% is on a speculative basis and almost 20% has been pre-leased by tenants.

Carolyn Salzer, Cushman & Wakefield’s Americas Head of Logistics & Industrial Research, said in prepared remarks that right now, leasing is comparable to 2019, “which was a great year for industrial real estate.” In fact, 2023 has seen more activity leasing activity in the 250,000 sf+ range, “showing significant demand for larger space than in 2019 in terms of both deal volume and deal count.”

The Cushman & Wakefield Research March 2023 U.S. Macro Outlook report forecasts more than 580 million square feet of net absorption during the next three years.