Dive Brief:
- Strong absorption of new industrial space is leaving a large supply of vacant older inventory, according to a report by CBRE.
- Nearly 2 billion square feet of new industrial space has been delivered since 2021 and has attracted occupiers of older facilities with features including higher clear ceilings and more power, CBRE says.
- This flight to quality is providing a major boost to industrial leasing activity, which is expected to reach 800 million square feet in 2024 — the third highest annual amount on record, per the report.
Dive Insight:
Industrial buildings completed between 2023 and the second quarter of 2024 have recorded 395 million square feet of positive net absorption since the first quarter of 2023 while those built between 2000 and 2022 have seen 17 million square feet of negative net absorption, CBRE says. Buildings that are 25 years old or older have suffered the most, with 139 million square feet of negative net absorption in that period.
The overall vacancy rate for industrial buildings constructed before 2000 is still much lower, at 3.6% compared with 44% for those completed after 2022, per the report. With more than 13 billion of the country’s 20 billion square feet of total industrial inventory built before 2000, however, “even a small increase in vacancy equates to significant negative absorption,” CBRE says.
The firm suggests that as occupiers leave older facilities, investors should consider either selling them to a growing pool of owner-occupiers, renovating them to meet modern standards or converting them to other uses. “Another option for well-capitalized investors is to hold these assets until market conditions for secondary and tertiary product improve,” CBRE says.
Industrial and manufacturing facilities were named among the top-three asset classes in which real estate owners and investors see the greatest opportunity in over the next 12 to 18 months, with logistics and warehousing facilities named as a top-five opportunity, per a recent Deloitte survey.
The national industrial real estate market has also seen in-place rents increase 7.2% year over year, to an average of $8.11 per square foot in August, according to a September CommercialEdge report. The largest rent gains have been along the coasts, with California’s Inland Empire, Miami and Los Angeles in-place rents growing more than 10% over the past 12 months, per the report.
The national industrial vacancy rate stood at 6.7% in August, up 30 basis points from July, as a “massive wave of new supply delivered over the last few years” continues to have an impact, CommercialEdge says. That rate hovered near 4% just two years ago, it says.
