Q3 2024 Industrial Market Continues to Normalize

The constant from the Q3 national industrial market information boils down to one word: Balance. Four reports discussed increased vacancy rates, a thinning pipeline and moderate absorption, which is par for the course following the pandemic-induced development and leasing frenzies.

Realignment and Economic Drivers

“Overall, the industrial market is adapting to economic uncertainties with a cautious approach, aiming for sustainable growth and balanced supply-demand dynamics,” noted JLL United States Q3 2024 Industrial Market Dynamics report. Additionally, JLL analysts put the slowdown to logistical realignments.

Cushman & Wakefield’s MarketBeat Industrial Q3 2024 report agreed, delving deeper into the realignment discussion by suggesting that “net absorption was modest in the third quarter, as some large occupiers continued to shed unneeded space due to cooling consumer demand and shifting of inventory strategies.” Meanwhile, speculative construction continues to dominate the pipeline, even as there’s less of it, the Cushman & Wakefield analysts said.

On the other hand, Lee & Associates’ Q3 2024 Industrial Market Overview noted that tenant demand has steadily recovered, buoyed by ongoing consumer spending and a “leveling off” of the warehouse jobs decline. Additionally, monthly U.S. imports have been “rising at double-digit, year-over-year rates since February,” meaning more goods have been released into the U.S. supply chain, the Lee & Associates analysts commented.

Fluctuations in Leasing, Steady Vacancy Rates

Still, JLL analysts indicated fluctuating leasing momentum due to economic uncertainties. “Businesses are remaining cautious and taking their time when signing leases,” according to JLL. Still, the slowdown “suggests a move toward a more balanced and sustainable pipeline following market anomalies triggered by the pandemic,” JLL analysts added.

This, in turn, has led to normalization in vacancy rates. Cushman & Wakefield analysts pointed out that they “are now more consistent with the long-term average of 7%, compared to the historically low levels of the first couple of years coming out of the pandemic, when vacancy was unsustainably tight.”

Outlook: Less Construction, Ongoing Stabilization

According to Colliers U.S. Industrial Market Statistics 24Q3 report, quarterly construction completions will continue falling over the next few quarters, “where new supply and tenant demand will approach equilibrium.” Meanwhile, Lee & Associates analysts forecast that the “volume of completions will remain elevated through 2024 or 2025.” At that point, deliveries will likely fall off as higher interest rates led to fewer ground-breakings over the past few years.

As for Cushman & Wakefield, its analysts believe vacancy will peak in mid-2025 before moving lower. “After this year, and with many major occupier consolidations behind us, we anticipate the engines driving demand for industrial space—e-commerce, 3PL, consumer spending, housing recovery and onshoring—to kick into a higher gear,” the analysts added.

JLL analysts added that the market should stabilize to a more sustainable growth level. “Over 50% of current constructions are expected to be delivered by 2025,” the analysts added.