Good morning, everyone.
The U.S. industrial market showed notable resilience in the second quarter of 2024, driven by steady economic conditions and robust consumer demand. Here’s a closer look at the key trends shaping the market:
Demand and Absorption
Industrial demand picked up significantly this quarter, with net absorption hitting 46.3 million square feet—more than double the previous quarter. Much of this activity was fueled by new deliveries, particularly in markets like Dallas/Ft. Worth, Phoenix, and Houston. However, not all regions shared in the growth; West Coast markets such as Portland, Seattle, and Los Angeles saw negative absorption, reflecting some regional disparities.
Vacancy Rates
National vacancy rates climbed slightly to 6.1%, marking the highest level in nearly nine years but still below long-term averages. The increase was mainly driven by the influx of new supply, especially speculative developments in the South. On the bright side, the pace at which sublease space is hitting the market has slowed, helping to keep overall vacancy in check.
Rental Rates
Asking rents continued to rise, averaging $9.97 per square foot, though the pace of growth has moderated. With a year-over-year increase of 3.7%, rent growth is at its slowest since 2020, suggesting a potential cooling in the market as supply catches up with demand.
Construction and Pipeline
The construction pipeline is beginning to contract, with 343 million square feet under construction at the end of Q2—a 14% drop from the previous quarter. This decline is most evident in speculative projects, which have decreased notably from their peak in late 2022. However, build-to-suit developments are on the rise, particularly in the Midwest, indicating a shift in focus toward more tailored projects.
Leasing Activity
Leasing remained strong, with 137.2 million square feet of new deals inked this quarter, just slightly down from Q1 but still well above the historical average. Key markets continue to see robust activity, signaling sustained demand for quality industrial space.
Outlook
Looking ahead, the market is expected to tighten further in 2025 as the pipeline continues to thin and absorption remains strong. Vacancy rates may peak early next year before starting to decline, while rent growth is likely to slow but remain positive, setting the stage for a more balanced market.
In summary, the U.S. industrial market remains on solid ground, with continued demand, manageable vacancy levels, and a pipeline that’s adjusting to market conditions. While there are signs of moderation, the fundamentals are strong, positioning the market for steady performance in the coming quarters.
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