Data recently released by industrial real estate firm Colliers, in its report titled “The Markets that Move America – Q2 2024,” highlighted key findings related to vacancy, new supply, demand, and rent growth, focusing on the 25 largest U.S.-based industrial markets by inventory.
Colliers observed that these 25 largest markets account for 76% of the total U.S. industrial base among the 77 markets it tracks.
One of the report’s key takeaways related to industrial markets by inventory was that developers continue to deliver modern facilities at what the firm called a “feverish” pace. Over the past four quarters, U.S. industrial inventory grew 4.1% annually, with the 25 largest markets expanding by an average of 3% annually.
A Colliers spokesperson told LM that the ongoing development surge and inventory growth are largely in response to the record industrial demand witnessed during 2021 and 2022.
“Due to the amount of time required to entitle projects, break ground, and complete them, many of the buildings being delivered today are a reaction to the net absorption seen following the pandemic, though the pace of inventory growth has slowed,” the spokesperson said.
Turning to new supply, Colliers noted that it dropped 18% annually in the largest U.S. markets, following a 50% reduction in total space under construction over the past year. This decline is outpacing the broader U.S. industrial market, signaling that the top 25 U.S. industrial and logistics markets are likely to recover more quickly than other markets.
Regarding the key factors driving the 18% annual decrease in new supply, the spokesperson attributed the slowdown in construction starts and development activity to high interest rates, increased construction costs, and concerns about vacancy and demand.
“This is good news for the market,” the spokesperson said. “As new supply drops, the equilibrium between supply and demand will return, and vacancy rates will peak more quickly than they would in a prolonged cycle, should development activity remain strong.”
Colliers also noted that while rent growth has slowed from the 20% annual increases seen in previous periods, rents continued to grow at a 5.3% annual rate in the top 25 markets in Q2. The firm added that although rents decreased in some coastal markets, future rent growth is expected, according to its forecast.
“Rent growth will continue to slow, and rents will likely contract in more markets in the coming quarters,” the spokesperson said. “Overall, in the U.S., rent growth is still anticipated over the next couple of years, driven by supply and demand rebalancing. Vacancy rates are expected to peak over the next few quarters and then start to decrease again. The forecast for U.S. industrial rent growth over the next two years is expected to align with average historical rent growth, between 3% and 5%.”
The report also examined how record new supply has pushed vacancy rates higher in the top 25 markets over the past eight consecutive quarters—by 202 basis points annually, reaching 6.4%. Notably, 67% of the new supply delivered year-to-date was in these top 25 markets, while vacancy in the remaining 52 markets stood at 6.6%.
In terms of demand, Colliers reported that demand in the first half of 2024 was down 55% annually. However, more than 70 new leases were signed year-to-date, with the majority of those in the top 25 markets.
Colliers anticipates this will translate into an uptick in demand in the second half of the year and into early 2025, as tenants occupy the space they leased.
