Industrial Net Absorption More Than Doubled In Q2

Industrial net absorption totaled 46.3 million square feet at the national level in the second quarter, according to Cushman & Wakefield. That’s up more than double from the first three months of the year.

Almost all of the overall absorption recorded nationwide continued to be tied to the delivery of new industrial product with tenants in place. Over half of U.S. markets tracked by Cushman & Wakefield yielded positive absorption in the second quarter, and absorption improved quarter over quarter in 36 different markets, while six markets surpassed 3 million square feet of quarterly absorption, led by Dallas/Ft. Worth (13.8 msf), Phoenix (7.4 msf) and Houston (4.3 msf).

Meanwhile, some of the highest pockets of negative net absorption occurred along the West Coast, as Portland, Seattle, Oakland-East Bay, and Los Angeles combined for 9.6 million square feet of negative absorption in the second quarter.

New leasing activity measured 137.2 million square feet, which was down slightly (-2.8%) since the first quarter but finished 11.2% higher than the 10-year pre-pandemic average of 126.9 million square feet.

Through midyear, the U.S. has recorded just over 278 million square feet of new transactions, putting the market on pace to surpass 500 million square feet for the 10th straight year.

Year-to-date (YTD) activity has been driven largely by seven markets that exceeded 10 million square feet of deal volume. There were another 11 deals greater than 1 million square fee signed in the second quarter, which pushed the YTD total to 27. In comparison, 34 such deals were completed throughout last year.

Asking rents increased to $9.97 in the three months ending June, up slightly from $9.75 in the March quarter. It was also up 3.7 percent year-over-year and deemed the slowest growth rate since 2020.

The biggest downside was vacancy rates, which edged up to 6.1 percent, from 5.7 percent last quarter. They were much lower a year ago when they were pegged at only four percent. The southern part of the country struggled the most, with a 6.6 percent in occupancy rate in the second quarter. Cushman & Wakefield attributed the spike in the category to new construction deliveries, which amounted to 121.1 million square feet.

“This is the highest the vacancy rate has been in almost nine years, but it still stands well below the 10-year, pre-pandemic (2010-2019) average of 7%.”

The Chicago, Illinois-based firm anticipates that vacancies will be higher going into next year. However, by the second quarter of 2025, it said it sees things “tightening” up.

As that happens, the rate of asking rent increases will likely go down. Cushman & Wakefield projects the growth to moderate at three percent at the end of the year before falling to 2.2 percent in 2025. In 2026, it expects the rate to dip to single digits. It’s the result of having fewer vacancies.

Another thing that will help in occupancies is the construction pipeline continuing to shrink. It was down 14 percent quarter-over-over in the three months through June.