The big box warehouse and distribution centers that were rapidly developed following the pandemic near major ports and industrial hubs around the country are now undergoing a difficult period of transition as oversupply and vacancy take hold, according to a new report from Colliers.The report defines big box facilities as modern buildings 200,000 square feet and larger, with ceiling heights of 28 feet or higher. It covers the period through midyear 2024.In the first half of 2024, construction slowed significantly, plummeting 45% from 289 million square feet a year ago to 158 million square feet. Nevertheless, construction continued on 67.8 million square feet of facilities in the 200,000 to 499,000 range, 32.9 million square feet in the 500,000 to 749,00 square feet range, and 56.5 million square feet of buildings exceeding 750,000 square feet. New supply dropped 28% to 120 million square feet.The effect of the cutbacks in construction nationally was to slow vacancy by 30 bps to 10.3% year-to-date, though it varied by the size of the facilities. Vacancy was highest in structures between 500,000 square feet and 749,000 at 11.1%.In the same period, net absorption amounted to only 46.5 million square feet, compared to 200 million square feet each year between 2020 and 2022. Of that, 29 million was in buildings 750,000 square feet or larger, the report said.Nearly half the 105 million square feet of new leasing activity in the first six months of the year was in buildings between 200,000 and 499,000 square feet. “This promising figure points to an expected bump in demand during the second half of 2024 and into the first quarter of 2025 as tenants occupy the space leased,” the report commented.Average rents rose only 6.9% year-over-year in the period, compared to more than 20% in 2022 and 2023.“While core markets – the Inland Empire, Dallas-Fort Worth, Atlanta, Chicago, Northern-Central New Jersey, and Eastern Pennsylvania Tri-State – continue to be favored by many occupiers, many secondary markets are also emerging, typically located close to the fastest growing population centers and the most-used logistics hubs in the region,” the report noted.The Inland Empire saw big-box vacancy climb 220 bps to 7% in 1H 2024 – up from 0.3% in 2022 – with buildings below 499,000 square feet experiencing 11.2% vacancy and the lowest absorption. Some 1.2 million was absorbed, mostly in the largest facilities. Leasing activity rose 10.5 million square feet, helped by Amazon’s lease of three facilities totaling 3.2 million square feet. Rents contacted by 19% to $15.93 per square feet– still three times pre-pandemic levels.Dallas-Fort Worth’s big box supply rose by 21 million square feet in the first half—85% of it was speculative – for a total of 71 million since early 2023. Vacancy soared to 14.4%. However, net absorption rose 20% to 11.6 million square feet compared to 2H 2023, and a larger boost in demand is expected. Rents grew but at a slower pace. However, the industry in the area faces a new challenge – data centers competing for land and paying higher prices than warehouse developers.Atlanta enjoyed positive demand of 2.7 million square feet for big-box space in 1H 2024, though vacancy rose to 10.8% because of new supply. However, construction underway and completed has fallen, paving the way for the big box vacancy rate to stabilize over the coming quarters. Rents also rose year-over-year.The story for Chicago was mostly positive. Demand accelerated, with net absorption of 10.5 million square feet, nearly double the level in 2H 2023. New leasing activity also doubled to 10.3 million square feet while the vacancy rate fell 40 bps to 8.4% — the first drop in eight quarters. Four leases each over 1 million square feet helped. Less inventory came on the market, with 20 big box buildings totaling 10.2 million square feet under construction, almost a third of 2023 levels. To cap everything, rent growth rose 16% year over year to $7.88 per square foot.In the Northern-Central New Jersey region strong demand and little new supply drove the vacancy rate down 130 bps to 6.9%, with facilities over 750,000 square feet seeing the lowest vacancy at 3.6%. Some 778,447 square feet was absorbed. “The market services the largest population concentration in the country,” the report noted. “New leasing activity more than tripled year over year, with the 12.6 million SF of new leases the highest number since the second half of 2022,” Rents remained steady at $15.84 square feet.For the Pennsylvania-New Jersey-Delaware region, the situation was less favorable. The inflow of 43 million square feet of new construction pushed the vacancy rate to 8.8%, up 210 bps. An additional 20.2 million square feet was under construction, and vacancy was projected to increase still further. Net absorption dropped 1.7 million square feet. However, leasing remained strong at 12.1 million square feet, with more longer leases signed and pending leases at several notable projects. “Third party logistics providers have been the most active demand sector, particularly Asian 3PLs that operate at the Port of New York and New Jersey,” the report noted.