Even though the industrial markets remain tight, there are more space options today for occupiers to consider compared to a few years ago. The amount of new warehouse space being delivered to the market, coupled with sublease space options, has increased vacancy levels slightly.
While industrial leasing activity was slower in the back half of 2023, industrial markets remain very healthy, with ample demand for space. Rental rates remain at or near the high-water mark and historically strong as landlords remain in control of the market.
Speculative construction will decrease in 2024, but plenty of planned pipeline projects are available for occupiers to lease as build-to-suit projects. It’s possible that leasing demand for industrial space will pick up in the second half of 2024 if economic soft-landing scenarios come to fruition.
One strong trend that will continue is the movement of manufacturing out of China. The beneficiaries of this movement will be other Southeast Asia countries, India, Mexico, and some parts of the United States. As manufacturing locations change, so does the entire supply chain and distribution patterns. This bodes well for the development of new industrial properties for the foreseeable future in these destinations.
Older, functionally obsolete industrial buildings and industrial parks within major cities continue to be targeted for redevelopment and will further reduce the total amount of industrial space available. In some instances, the new development remains an industrial space, but more often the replacement product type is residential or mixed-use because of the high land costs.
Two-story industrial buildings, while less common than single-story industrial facilities, are increasingly gaining attention in last mile distribution redevelopments in the largest cities worldwide. Advancements in technology and automation are making it more feasible to operate vertically stacked industrial facilities efficiently. Automated storage and retrieval systems, vertical conveyors, and other innovative solutions enable streamlined material handling and logistics within these two-story industrial buildings. The high cost of land in cities like Tokyo, New York, London, and San Francisco justifies the expense of building these types of industrial buildings in dense urban areas. Even smaller port cities with land scarcity could see these types of buildings being built in the next decade.
Overall, the commercial real estate industrial market in the United States remains dynamic and resilient, driven by strong demand fundamentals and ongoing industry evolution. However, stakeholders must stay attuned to emerging trends and risks to successfully navigate this rapidly evolving landscape.
Curious how the industrial market is in your area? Reach out to one of our commercial real estate experts near you here. All ITRA Global members exclusively represent tenants and provide principal-level expertise based on transparency, integrity, and trust. With members worldwide, ITRA Global is uniquely positioned to meet all your real estate advisory needs.
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Article submitted by Wayne Teig / ITRA Global Minneapolis-St. Paul, Minnesota USA
