Industrial Vacancies and Rents Look to Stabilize Eventually
The largest industrial metros saw a vacancy increase of 202 BPs and asking rents were up 5.3%.
Colliers has written about industrial construction and oversupply, similar to multifamily. And, like that other category, inventory changes partnered with demand have affected vacancy and rents.
According to the investment management firm, over the last eight quarters, there was a record new supply in the top 25 markets. But in the past year, properties under construction dropped by half. New supply fell by 18% year-over-year in the biggest markets. Out of the total 77 that Colliers tracks, 25 of the top ones represent 76% of the total industrial base across the total markets.
As new supply increased over the last eight quarters, so did the average industrial vacancy rate, up 194 basis points to 6.4%. The largest 25 metros saw a vacancy increase of 202 basis points, again to a total of 6.4%. That again was due to the 67% of new supply delivered to those markets.
The smallest year-over-year vacancy rate increases by the number of basis points were Cleveland (-61); Detroit (-20); Chicago (20); St. Louis, MO (23); Kansas City (108); Milwaukee (114); Minneapolis-St. Paul (115); Memphis (138); Houston (151); and Tampa Bay (160).
The biggest spikes in vacancy rates out of the top 25 metros were Phoenix (651); Atlanta (352); San Francisco Bay Area (310); Columbus (302); Indianapolis (298); Philadelphia (295); Dallas-Forth Worth (281); Seattle\Puget Sound (276); Greater Los Angeles (240); and Charlotte (231).
As development slows, new supply will reduce and vacancy rates will grow more slowly, peaking in most markets by early 2025. Markets will again see equilibrium. Net absorption has been slowing, with 71 million square feet in the first half of 2024 being 47% below the first half of 2023.
In the top 25 markets, in the first half of 2024, net absorption was 41 million square feet. That was 59% of the country’s total, down 55% from the first half of 2023. The greatest year-to-date net absorption was in Chicago, 15.1 million square feet. Phoenix saw 9.8 million square feet, Dallas-Fort Worth had 9.5 million square feet, and Houston was 5.6 million square feet.
As for rents, the overall ask for industrial properties was up in the first half of 2024 to $11.07 per square foot. That was an 8.6% year-over-year increase. Rent growth was 20% during the first half of 2023 but it has since slowed. Asking rents on average were up 5.3% year-over-year across the 25 top properties.
The top growth markets were Minneapolis-St. Paul (24.9%); Phoenix (22.7%); Denver (18.5%); Chicago (16.9%); Tampa Bay (16.4%); Charlotte (16.3%); San Francisco Bay Area (15.4%); Dallas-Fort Worth (14.9%); Atlanta (8.2%); and South Florida (7.8%).