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.