During the past two years, the industrial sector of commercial real estate has been on fire, marked by incredible demand, low vacancies and record absorption. Data from Q3 2023 showed a slowdown on multiple fronts, primarily due to record supply being delivered and more cautious tenants.
On the other side of the coin, Plante Moran indicated that the industrial sector is “downshifting from its record level of activity that has persisted since the pandemic,” mainly due to concerns over the economy and the record supply being delivered. Noted JLL’s Industrial Outlook: “Many users have either pressed pause on executing new deals or are taking much longer to finalize deals as they evaluate all outcomes.”
Furthermore, construction is starting to slow, primarily due to the high labor and materials costs. Additionally, there is concern that higher interest rates could “cause values of newly delivered projects to dip below replacement costs,” Lee & Associates’ North America Market Reports pointed out.
The outlook calls for higher vacancy rates as rent growth slows due to new supply coming online over the next 17 months. While slower leasing activity will put downward pressure on rent absorption for the rest of the year and into 2024, “the strong appetite for new Class A logistics facilities is expected to continue,” Cushman & Wakefield analysts commented.
Lee & Associates analysts also believe that the “onshoring of high-tech manufacturing is set to be a key driver of demand from 2024-26.” Even amid the continued supply delivery, JLL experts believe it will remain a landlord market for now.
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