Industrial Market Net Absorption Slides 37.6% in Q1

Net absorption for the overall industrial market was 37.6% lower in Q1 2023 as demand has moderated from its record pace in 2022 across most metros and the average overall asking rents for US industrial properties continued to increase in 2023, according to a recent Colliers report.

The report showed inventory grew 3.4% year-over-year among the top 25 markets, led by the South at 5.5%. The West region was slowest at 2.1% year-over-year.

Six markets logged more than 4 million square feet of positive net absorption in the first quarter: Dallas-Fort Worth, Chicago, Phoenix, Portland, Indianapolis, and Houston, Colliers said, led by Dallas-Fort Worth at 8.6 million square feet year-to-date.

“Significant speculative development there will continue to challenge its fundamentals,” according to the report.

In May, Yardi Matrix found in-place rents on current leases were rising, average sale prices continue to increase, and industrial property values – though lower – are still higher than for most other property classes.

It, too, said the industrial property market in the U.S. appears to be slowing somewhat amid economic uncertainty.

Colliers’ report showed that “below-average vacancy rates and strong rent growth in many of the West region markets suggest a limited amount of land to develop in these metros.”

Columbus (17.2%) and Houston (12.8%) saw the greatest year-over-year inventory growth. Nine other markets recorded year-over-year inventory increases greater than 3.4%.

The “laggards” were Detroit, the San Francisco Bay Area, and Seattle, which increased by less than 1%. Cleveland fell slightly.

Average U.S. overall asking rents for industrial properties increased by 20.4% in Q1 2023 to $9.58 per square foot in the first quarter, continuing their steady climb.

This should slow in the coming quarters due to steady supply additions and resulting vacancies.

Rent growth in the Northeast and West was higher than the national average. Pricing premiums there is the “standard,” the report said.

The San Francisco Bay area, Greater Los Angeles, New York City metro, South Florida, Seattle, and Washington, DC, markets had some of the highest average industrial rents in the country — each at more than $14.50 per square foot in the first quarter, the report showed.

YoY asking rents were highest in Phoenix, Tampa Bay, Greater Los Angeles, Atlanta, and Columbus, each eclipsing greater than 15% growth.

Denver and St. Louis were the only markets where YoY asking rates declined as demand has moderated from its record pace in 2022 across most metros.