Bulk Warehouse Space Sees Significant Drop in Occupancy
Vacancies rose in every region of the country and in almost every market, partly driven by 607 million SF of new development
Occupancy of bulk industrial space for warehouse and distribution purposes fell by almost half in 2023 compared to 2022. However, according to Colliers, that slump was no surprise after two years “of exceptional and unsustainable demand.”
Vacancies rose in every region of the country and in almost every market, partly driven by 607 million SF of new development — almost 85% of it built on a speculative basis – and partly by a drop in demand. “In some emerging markets, vacancy increased by several hundred basis points during the year, nearing or eclipsing 10%,” the report noted, adding that it may take some time to return to historical norms.
There was a steep drop of 47.6% in new occupancies exceeding 100,000 SF during the year — to just 302 million SF in 2023 compared to 576 million SF in 2022. Far fewer new leases were signed – 1,042 compared to 1,956 the previous year. And the average amount of space leased also declined slightly to 289,000 SF from 294,659 SF.
The Northeast suffered the worst from fewer bulk occupancies, with a 62.6% slump to 109 in new occupancies over 100,000 SF. The Southeast also saw a 59.1% drop to 206 new bulk occupancies, followed by the Midwest with a 51.1% drop. New occupancies in the West fell 37.3% but the region still had the highest number of new bulk leases: 288. The Southcentral region (Texas, Oklahoma, Arkansas and Louisiana) managed the smallest drop in occupancies at just 20.7%, with 174 new leases signed.
Transaction speed, however, slowed in all size segments, with velocity down by at least 41% compared to 2022. Occupancies between 300,000 and 500,000 SF fell the most, by 51.2%. As in the past, third-party logistics providers (3PLs) and packaging companies occupied the most space in 2023, taking up one-third of new bulk occupancies. Manufacturing occupancies rose 16% — a trend Colliers attributed to passage of the CHIPS Act, designed to spur construction of semiconductor factories in the U.S. along with EV battery plants. By end 2023, 44 manufacturing plants with an investment of $1 billion or more were under way.
E-commerce’s share of new bulk occupancies fell to 7.6%, down from 12.3% in 2022. Amazon’s scaled back expansion plans were a big factor. In 2022 the company occupied 58,338,470 SF. In 2023, that dwindled to 16,775,570 SF. Major retailers like Walmart and Home Deport also shrank their space requirements as did package delivery services like FedEx and UPS – with some dropping off the 2022 top 10 list altogether.
“While new bulk occupancies will decrease again in 2024, the year-over-year drop is forecast to be less dramatic as demand normalizes near pre-pandemic levels,” Colliers predicted.
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