Industrial Sees Its Highest Level of Deliveries to Date

The third quarter delivered the highest level of industrial inventory on record to date at 171.8 million square feet with the South continuing to outpace the rest of the US, accounting for 47% of the year-to-date deliveries, according to a new report from Cushman & Wakefield.

This “expectedly” pushed the overall vacancy rate up 70 bps to 4.7%, according to the report. The completions represented an 18.7% uptick quarter-over-quarter (QOQ) and a 10.4% increase compared to the previous record set in Q3 2022.

Since the start of the year, more than 451 million square feet of new deliveries have been completed across the nation – 23.5% higher compared to this time last year.

“The significant amount of new vacant supply coupled with softening consumer demand and modest new leasing activity have all contributed to the rise in overall vacancy,” according to the report.

But Senior Research Director Jason Price noted that while the vacancy rate is climbing due to the new supply coming to market, “it remains below the 10-year average of 5.1% and is 10 bps lower compared to the first quarter of 2020.”

Dallas-Fort Worth with 32.1 million square feet is the most active market for deliveries, almost double Phoenix in second place with 17.4 million.

Quarterly absorption saw 46.2 million square feet of net industrial growth, down 12.9% QOQ, 17.5% below the five-year pre-pandemic average of 211.6 million square feet.

Tenant demand remained healthy with 125 million square feet of new deals completed in Q3 and a steady stream of deal activity with leases of 200,000 sf and under.

Nonetheless, new leasing activity declined modestly compared to the previous two quarters, mainly attributed to transactions taking longer to complete as well as a decline in 500,000 sf+ deals.

“With developer reticence to commit to speculative projects because of current economic conditions, we can anticipate slow construction starts over the next two to three quarters,” Price added.

“Given the unprecedented high level of demand we’ve experienced these last few years, we can expect to see a more balanced market in the near future, with some regions potentially becoming supply constraint when demand regain momentum.”

Asking rents climbed moderately higher, registering a 0.9% rise overall.