Western U.S. Leads in Bulk Occupancies as Industrial Demand Steadies Nationwide

Demand for large industrial spaces is seeing steady growth amid a pullback in new construction, providing a silver lining for a sector grappling with high vacancy rates and slowing development.

Industrial occupancies for spaces over 100,000 square feet, or “bulk occupancies,” are getting smaller in average transaction size but continue to gain traction. In the first half of 2024, new bulk occupancies rose by 7.4% year-over-year to 151 million square feet, despite a broader cooldown in industrial construction, according to Colliers.

The average bulk occupancy size in H1 2024 came in at 257,804 square feet, down from 289,840 square feet in the same period last year, Colliers reported. Third-party logistics firms, manufacturers, and retailers led the pack, driving demand in a challenging market for industrial landlords. Leasing activity is on an uptick, with the recent gains in bulk occupancies expected to continue through the year.

“A bump in leasing activity during the first half of 2024 will lead to another increase in bulk occupancies during the second half,” said Craig Hurvitz, director of national industrial research at Colliers. “With new supply continuing to fall and demand building back, these indicators are approaching equilibrium. Vacancy rates in most markets should peak and begin to ease by early next year.”

Demand for industrial spaces appears to have bottomed out following two consecutive years of declines in bulk occupancies during H1 2022 and H1 2023. But while bulk occupancies are up, some markets continue to struggle. Double-digit vacancy rates have emerged in areas with oversupply, where market normalization may take longer than in regions with fewer new builds.

Bulk occupancies increased across all regions but were particularly strong in the Western U.S., where activity totaled 55 million square feet across 213 transactions, which reflected a 47% increase from the first half of 2023. The biggest percentage surge was in the Northeast, where bulk occupancies reached 14.4 million square feet, which reflected a 74% increase over last year. By contrast, the South-central and Midwest regions posted declines, with bulk occupancies down 36% and 23%, respectively. However, total square footage still amounted to 16 million square feet in the Southcentral region and 35 million square feet in the Midwest.

Despite these fluctuations, demand for large industrial spaces over 100,000 square feet is expected to trend toward pre-pandemic levels. Hurvitz noted that while demand may not reach the record highs of 2021 and 2022, the slowdown in new construction and a gradual rebound in demand could bring relief to landlords facing oversupply and falling rents.