Cushman & Wakefield report examines 2023 industrial real estate output

The fourth quarter 2023 industrial real estate vacancy rate headed up to end the year, according to research issued by Chicago-based Cushman & Wakefield earlier this month.

Rising 0.6%, to 5.2%, the firm reported in its “Industrial Q4 2023” report that the decrease was driven by the pairing of muted demand and speculative constructions persisting at a healthy rate. What’s more, it added that this marks the first time the industrial vacancy rate has been above 5% going back to the third quarter of 2020, but it is still short of the 6.4% long-term 15-year average.

“While the new development pipeline has exceeded demand, we are clearly seeing signs that construction is slowing in response to market conditions and tempered absorption totals,” said Jason Price, Head of Logistics & Industrial Research at Cushman & Wakefield, in a statement. “Leasing velocity remains steady but occupiers continue to shed excess space in some markets, leading to slower growth.”

Cushman & Wakefield reported that fourth quarter new deliveries came in at 156.3 million square-feet (MSF), representing a 9.8% decrease off of the third quarter, which is a quarterly record, at 173.2 MSF, while marking the second-highest completion total on record, and largely driven by vacant, speculative deliveries in the four U.S. regions. Despite the nearly 10% sequential decline, the firm observed that the fourth quarter represents the fourth time ever that new deliveries topped 150 MSF. And for calendar year 2023, new deliveries, at 609.6 MSF, rose 17.6% annually, topping the previous record set in 2022.

Price told LM that there were no real factors for the sequential decline.

“It was still the second-highest quarter for deliveries on record,” he said. “It’s probably just a combination of timing and in some cases—developers pushing their completion dates back a little.”

Looking at net absorption, the report explained that it was muted in the fourth quarter, with 41.1 MSF absorbed, down from the third quarter’s 52.5 MSF. For all of 2023, net absorption ended up at 224.3 MSF, which Cushman & Wakefield said matched up with the pre-pandemic 10-year average, at 224.8 MSF, and was driven by new industrial product delivered with tenants in place—either build-to-suit or speculative pre-leased space. The final 2023 tally was 2.5% less than a prior estimate the firm had made, at 218.9 MSF, a 2.5% decrease.

As for if net absorption will continue to be muted over the first half of 2024, Price said that is the expectation.

“With cooler consumer demand coupled with some economic uncertainty still out there— plus sticky inflation and high interest rates—net demand won’t likely pick up steam again until later in 2024,” said Price.

Fourth quarter new leasing activity saw, at 133.8 MSF, was off 2%, from the third quarter to the fourth quarter. The lone regional decline was out of the south, with the other three regions posting increases, according to the firm. And, for all of 2023, the U.S. industrial real estate market yielded 588 MSF in new leasing activity in 2023, marking the fourth strongest year on record, as well as the eighth year in which the U.S. recorded more than 550 MSF in new transactional volume.

“While I don’t think leasing will exceed 550 MSF in 2024, I do think it will remain historically strong and hover around the 10-year pre-pandemic average of 500 MSF,” said Price. “I think leasing will be stronger in the second half of 2024 than it will be in the first half.”