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Demand for U.S. industrial space took a hit in the first quarter of 2023 as tenants reconsidered their inventory levels

Industrial Space Demand Drops Sharply in Q1 as Tenants Reconsider Inventory Needs

U.S. tenant demand for industrial space dropped sharply in 2023’s first quarter as wholesalers and retailers reconsidered their inventory levels out of caution over the economic outlook, Lee & Associates reported. Net absorption in the first quarter totaled 39.4 million square feet, down 57% from the record set a year ago, while the U.S. vacancy rate settled at 4.4%, well below the 7.3% market average over the past two decades.  

“While a potential pullback in consumer spending poses downside risks for 2023, onshoring of high-tech manufacturing will likely be a key driver of U.S. absorption from 2024-26,” Lee & Associates said in its report. “The federal government’s 2022 passage of the CHIPS and Science Act, and the Inflation Reduction Act provided more than $400 billion worth of incentives for growth in U.S.-based high-tech manufacturing.”  

The stock of U.S. industrial property is set to grow nearly 4% in 2023 for the fastest pace of supply growth in more than 30 years. “Barring a severe shock to the U.S. economy and industrial leasing, the volume of space set for delivery likely will produce only a moderate increase in vacancy without tipping the market in the tenants’ favor,” the report stated. 


Inside The Story

Lee & Associates

About Paul Bubny

Paul Bubny serves as Senior Content Director for Connect Commercial Real Estate, a role to which he brings 13-plus years’ experience covering the commercial real estate industry and 30-plus years in business-to-business journalism. In this capacity, he oversees daily operations while also reporting on both local/regional markets and national trends, covering individual transactions across all property types, as well as delving into broader subject matter. He produces 15-20 daily news stories per day and works with the Connect team and clients to develop longer-form content, ranging from Q&As to thought-leadership pieces. Prior to joining Connect, Paul was Managing Editor for both Real Estate Forum and at American Lawyer Media, where he oversaw operations at both publications while also producing daily news and feature-length articles. His tenure in B2B publishing stretches back into the print era, and he has served as Editor in Chief on four national trade publications. Since 1999, Paul has volunteered as the newsletter editor of passenger rail advocacy groups (one national, one local).

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