Big-box industrial product continues to set the tone for the overall industrial market, according to a new report from global investment management firm Colliers. The segment attracted the lion’s share of the record demand in response to the pandemic, and is largely what developers have been building during the ongoing cycle.
Craig Hurvitz, Colliers’ director of national industrial research, and Stephanie Rodriguez, Colliers’ national director of industrial services, note that while the product is still dealing with cooling from its post-pandemic highs, there are promising signs of a rebound in the near to long term.
Key Factors Affecting Big-box Growth
During the hyperactive market of 2021 and 2022, big-box product—defined as modern buildings of 200,000 square feet and larger with ceiling heights of at least 28 feet—represented the majority of industrial demand, according to Hurvitz. That demand for big-box space peaked at 357 million square feet in 2021, but totaled only 47 million square feet during the first half of 2024. Despite the drop, demand has remained positive, a sign that the big-box industrial market continues to expand.
“Most of the new supply delivered during the ongoing industrial development boom has been big-box space,” said Hurvitz, noting that the unprecedented construction activity peaked in 2022 and has been normalizing to pre-pandemic levels each quarter as product was delivered.
As a result, overall industrial vacancy has increased for the past nine quarters in a row, climbing 306 basis points from a low of 3.6% in Q2 2022 to 6.6% as of Q3 2024. Big-box vacancy rose even faster, up 561 basis points from a low of 4.6% to 10.3% in the same period.
Rodriguez said that the construction pipeline has fallen off dramatically in response to rising costs as well as interest rate and vacancy concerns. She noted that at midyear, 158 million square feet of big-box space was under construction, which is 56% less than the 358 million square feet under construction when it peaked in 2022.
And while Rodriguez said that most secondary markets are seeing higher big-box vacancy rates overall, some are seeing less new supply translating to lower vacancy, citing Nashville (6.2%), Charlotte (6.2%), and Northern California (8.1%).
“As a result, while big-box vacancy is still rising, the rate it is increasing is starting to slow. Vacancy will peak in the first half of 2025 then begin to fall again as new supply and tenant demand return to balance,” added Rodriguez.
Big-Box Outlook Has Bright Spots
Despite some sluggishness, Colliers’ experts have optimism around tenant demand and rent growth in the big-box industrial space. Rodriguez said that while tenant demand has fallen in 2024, new leasing picked up during the first half of 2024, particularly in big-box buildings of 500,000 square feet and larger.
“We believe this will translate to an uptick in demand during the second half of 2024 and into early 2025 as these tenants move in,” she noted. Hurvitz added that big-box rent growth exceeded 25% year over year during the second half of 2022 and the first half of 2023. For the first half of 2024, big-box rents were up 6.9% year over year.
“While rents are still growing overall, that growth has slowed down,” said Hurvitz. “Some markets have seen rents contract, particularly coastal markets where rent growth over the past few years far exceeded the overall U.S. market.”
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Lynn Brackpool Giles
Lynn Brackpool Giles is former Managing Director of Communications and Consumer Services for the Financial Planning Association (FPA), where she oversaw all corporate, legislative and consumer communications. In her current journalistic practice, she is a frequent contributor to numerous financial services industry publications.
