Industrial Net Absorption Down 60% in Q2

Vacancy rates for industrial space are continuing to rise, but experts say there’s still no reason to worry.

Indeed, even though the vacancy rate has been creeping up for four consecutive quarters to hit 4.7% in Q2 2023, that level is even with the highest levels ever recorded in the industrial market prior to the pandemic, in the view of CoStar Group.

Industrial net absorption was down 60% in the quarter compared to the prior year, but remained positive. Furthermore, the very low vacancy rates reached at the height of the pandemic have helped cushion landlords from softening tenant demand.

However, a near-record number of distribution centers completing construction were still unleased and demand for space cooled significantly in Q2 2023. A number of tenants tied to the housing market closed distribution centers this year as high mortgages depressed home sales. The group included Bed Bath and Beyond (now purchased by Overstock.com), Noble House Furniture, American Building Supply, and Big Lots.

Other businesses like Unilever, Dollar General and Standard Motor Products that sell inflation-proof necessities have continued to expand their distribution networks, thus increasing the industrial tenant base. Market conditions in port cities like Jacksonville and Tampa, FL, have become tighter as their populations grow. And in Detroit, where developers have held back on investing for many years, demand for industrial space is rising.