These Industrial Markets Could See Turbulence

Multifamily in multiple geographic markets has faced pressures from rapidly increased inventory. The units were needed but are concentrated in markets like the South and parts of the West, increasing total vacancies and pushing down on rent growth.

According to a recent CBRE report, there is “turbulence ahead for some industrial markets.”

“Some important industrial markets will see a deluge of new construction completed this year, including Dallas-Fort Worth (where the availability rate is already in double-digits), Riverside, Atlanta and Houston,” they wrote.

Phoenix has 33 million square feet under construction, the most in the U.S. and a third of it won’t be finished until 2025. “Considering this, we forecast that the availability rate will surpass 12% next year,” they wrote. “In some emerging markets, such as Savannah and Austin, the supply pipeline amounts to nearly 12% of inventory—the only markets in this analysis with double-digit supply growth.”

The top 15 markets, ranked by millions of square feet under construction, are Phoenix, Riverside, Atlanta, Dallas, Houston, Savannah, Austin, Las Vegas, Chicago, Boston, Kansas City, Philadelphia, Forth Worth, Indianapolis, and Greenville. The range of construction is from Phoenix’s 33 million square feet to maybe 8 million square feet in Greenville.

“Landlords will need to be aggressive in leasing this new space—whether in Phoenix or Savannah,” said CBRE. “Nationally, the pre-leasing rate on completed buildings has plummeted to 32% from a peak of over 70% in 2021 and 2022.”

As often happens in CRE, though, there are other conflicting reports. In early May, industrial CRE giant Prologis saw a level of activity in April “consistent with demand generation, supported by macro data that reflects restocking inventories amid resilient consumption activity, although realized net absorption has lagged.”

Facilities utilization was about 85% in both March and April. That’s up from a low of 83% in the last quarter of 2023.

“Despite a strong rise in import volumes, sales outpaced inventory growth, pushing down the inventory-to-sales ratio to 1.24, approximately -3% below the 2019 average. This points to further need to build inventories, particularly for wholesalers.”

The company also noted that net absorption of 26 million square feet underperformed what might have been expected. “IBI readings and macro data suggest logistics real estate demand growth should be higher than what was realized in Q1,” they said.