Industrial on Pace to Absorb More Than 100M SF This Year

Fueled by unleased speculative deliveries, the national industrial vacancy rate has climbed by 30 basis points during the third quarter to reach 6.4%, according to Cushman & Wakefield’s latest industrial segment research. This represents the lowest quarterly increase in vacancy since the fourth quarter of 2022 and remains below the 10-year pre-pandemic average of 7%.

New industrial supply has slowed, and overall absorption remains soft but positive, said Jason Price, senior director and Americas head of logistics and industrial research at the firm. “We expect that net absorption will more than double in 2025 as leasing activity accelerates with greater economic certainty.”

During the quarter, overall net absorption was 29.5 million square feet, a decrease from 45 million square feet during the second quarter but an improvement from 21 million square feet during the first quarter. Altogether, the country has absorbed 96 million square feet of industrial product through nine months and is on pace to easily exceed 100 million square feet by the end of the year.

The strongest absorption totals have been in Dallas-Ft. Worth, Houston, Phoenix and Savannah. Meanwhile, negative numbers were recorded in Los Angeles, New Jersey, Oakland, Reno, Seattle and Portland, according to the report.

New leasing activity remained above pre-pandemic averages at just under 140 million square feet during the third quarter, compared with flat performance a year ago. Nearly 434 million square feet of deals have been transacted since the start of the year, a slight decrease compared with the same time last year. Thirty-two markets recorded annual increases for new leasing activity of at least 10% this year.

For the first time since early 2022, less than 100 million square feet of industrial deliveries were recorded during the third quarter. The bulk of new developments this year have been concentrated in the South and West, led by Dallas-Ft. Worth and Phoenix. Almost all deliveries this year have been speculative developments, the report said.

The average asking rental rate for industrial space exceeded the $10 per square foot level for the first time in history at the close of Q3 at $10.08. The Northeast and South yielded the highest annual increases for asking rents while that category in the West fell 3.3% since Q3 2023.

“Industrial construction is in the final stages of adjusting to the more normalized levels of demand and absorption and we expect to see markets stabilize in 2025,” said Price. “The pipeline has shrunk to a low (309.3 msf) not seen since year-end 2018 and will continue to dissipate into early next year as construction starts remain muted. We anticipate demand reaccelerating in the second half of next year amid softer delivery totals, coupled with healthy leasing totals.”