Industrial Market Falling Back to Pre-Pandemic Levels

The most intense era in recent memory for the industrial market appears to be at an end.

The market is softening across the country as economic uncertainty, inflation and oversupply continued to make a mark in the second quarter, according to JLL. Data show there were nearly 113 million square feet of industrial leases signed in the second quarter, a stunning 47 percent drop year-over-year.

Outside of the general economic concerns hampering real estate sectors across the board, oversupply seems to be a critical issue in the market.

More than 128 million square feet of industrial space was delivered in the second quarter, up more than 20 percent from last year. But the pre-leasing rate for new space was only 39 percent last quarter, down 24 percentage points from last year’s second quarter.

As supply rises and demand — or at least pre-development demand — wanes, the impossibly tight occupancies are loosening. The vacancy rate was 4.2 percent in the second quarter, compared to 3.8 percent in the first quarter and 3.4 percent at the end of last year. It remained below pre-pandemic levels.

Miami-Dade County had the lowest vacancy rate at 1.8 percent for the quarter. Orange County was the second-tightest market with a 2.1 percent vacancy rate.

The sublease availability rate doubled year-over-year to 0.6 percent.

The figure bound to make industrial landlords happiest in the second quarter was regarding asking rents. Despite looser vacancy rates and diminished leasing activity, asking rents still shot up to $9.48 per square foot, an 18 percent increase year-over-year. The report suggests rate growth in the category will slow, though actual asking rents will continue to increase.

Absorption is anticipated to remain positive through the end of the year, as there are still plenty of pre-leased assets to be delivered. After those are completed, however, absorption is expected to cool dramatically. Tenants are also increasingly pausing industrial leasing as the market stabilizes.

Manufacturing and automotive leasing is an area to keep an eye on in terms of growth, according to the report, due to growing demand for electric vehicles and batteries.