Industrial’s Vacancy Rate Tops 5% for First Time in Three Years

With demand muted and speculative construction completions persisting at a healthy rate, the  industrial vacancy rate has crossed the 5% threshold after ticking up by 60 basis points to 5.2%, according to Cushman & Wakefield’s Q4 industrial report.

The rate has not been this high since Q3 2020, but it remains 120 basis points below the long-term 15-year average of 6.4%.

Jason Price, Head of Logistics & Industrial Research at Cushman & Wakefield, said in prepared remarks that while the new development pipeline has exceeded demand, he is “clearly” seeing signs that construction is slowing in response to market conditions and tempered absorption totals.

“Leasing velocity remains steady but occupiers continue to shed excess space in some markets, leading to slower growth,” he said.

Absorption was positive in 58 of the 83 markets Cushman tracks. Of those, 19 topped 1 msf of occupancy gains, led by Houston (6.4 msf), the PA I-81/I-78 Corridor (4.9 msf), the Inland Empire (3.5 msf), and Las Vegas (3.2 msf).

Rental growth slowed, too, given the backdrop of rising vacancies coupled with tempered demand, Price said. On an annual basis, it moderated to 10%, the fifth consecutive quarter it did so on an annual basis.

Rent growth was strongest in the Northeast at 16.1%, year over year. The other three regions posted annual growth rates from 5.5% to 6.6%.

“We expect rent growth throughout most of the country to continue to slow in 2024 as we previously forecast,” Price said.

Savills sees potentially lower supply and possibly lower vacancy rates by late 2024.

New leasing activity remained steady at 133.8 msf, down just 2% since the Q3 total, according to the report.