According to a research from commercial real estate services company CBRE covering the first quarter, industrial real estate vacancy rates in the United States have beat prior records by rising to the highest level seen in over 14 years. The overall vacancy rate increased by 50 basis points from the previous quarter to reach 3.5%. This still comes in below the 10-year average, which is 5%. The greatest increase in warehouse space availability ever—89 million square feet—became available in the first quarter of 2023, which contributed to the rise in vacancy rates.
Factors Contributing to Vacancy Rate
Another piece that plays a key role in the vacancy rate are newly constructed warehouses. The second-highest quantity ever recorded in terms of new building completions is 144.1 million square feet, according to CBRE. But compared to the prior quarter, when lessees occupied 73% of the new supply, they only occupied 43% of the new supply this quarter.
Although the quantity of warehouse space that has been leased, both new and used, has increased over the past 13 years, the first quarter of 2023 saw the lowest net absorption since the second quarter of 2020. With only 54.2 million square feet of net absorption, this is less than the 87.6 million square feet 10-year average.
The decrease in import surges over the previous two years, together with shippers reevaluating their warehousing needs, is blamed for the slowdown in regional markets, particularly those close to ports. The first quarter of 2019 saw the New Jersey warehouse market experience its highest vacancy rate since the second quarter of 2022, rising to 3.3%.
According to CBRE, the total industrial space in the US has grown by 2% from a year ago to 18.3 billion square feet. Additionally, the business predicts that warehouse demand will remain uneven until 2023 since “the urgency to increase inventories has waned”.
Despite a decline in demand in the first quarter, average rents increased to a new high of $9.91 per square foot, up 3% from quarter to quarter and 11% from year to year. This suggests that the supply and demand in warehouses are in good shape.
Building projects are dropping for the first time in more than four years to 620 million square feet, suggesting that builders are holding off on building new warehouses in response to increased financing rates and more availability. This is a 7% decline from the fourth quarter of 2022 and, according to CBRE, will help the market in 2024.
The availability of warehouse space has increased, and newly constructed warehouses have also contributed to the growth in industrial real estate vacancy rates in the US. However, other warehouse supply and demand indicators are still strong, as evidenced by rising average rents, notwithstanding the rise in vacancy rates. Builders are delaying the construction of new warehouses in response to the market slump, which is anticipated to boost demand in 2024.