Industrial Big-Box Leasing Expected to Remain Strong in 2024
CBRE expects 2024 to become the third-highest year on record for industrial big-box leasing. While a surge of new construction delivered a record 413 million square feet (SF) of industrial space in 2023, the company believes the current oversupply will be temporary.
According to Chris Riley, President of U.S. Industrial & Logistics Capital Markets at CBRE, investor confidence has improved significantly compared to last year. Stable industrial fundamentals and a healthier credit market have helped increase demand. Riley noted that purchase bid sheets are now three times deeper than they were in the fourth quarter of 2023.
Industrial Rents Continue to Grow
Industrial facilities across the United States, Canada, and Mexico recorded higher rents in 2023. Rent growth reached 15.9%, which remained strong despite being lower than the 25.1% increase reported in 2022.
CBRE’s 2024 North American Industrial Big-Box Review and Outlook found that rent growth continued even as direct vacancy rates increased to 6.6%, double the level recorded in 2022. Leasing activity also declined by 15.8% during the year.
Mexico City posted North America’s lowest vacancy rate at just 0.3%, down from 1% in 2022.
Food and Beverage Sector Drives Absorption
Strong leasing activity generated 1.9 million SF of positive absorption across North America. Food and beverage companies accounted for more than half of the occupied space.
The report also highlighted that only 3.3 million SF is currently under construction, with 57% of that space already preleased. This limited pipeline could help support market fundamentals moving forward.
Retailers and Logistics Firms Lead Demand
General retailers and wholesalers were the most active users of industrial space in the United States during 2023. Together, they represented 36% of all lease transactions.
Third-party logistics (3PL) providers followed closely, accounting for 35% of leasing activity. Demand also increased among automobile manufacturers, tire and parts suppliers, and construction-related businesses.
Looking ahead, CBRE expects food and beverage companies, along with e-commerce fulfillment operators, to expand their leasing activity in 2024.
The study focused on warehouses of 200,000 SF or more, which CBRE considers essential for large-scale national and international distribution networks.
Supply Chain Strategies Continue to Evolve
CBRE found that leasing demand was driven by several key factors. Companies are seeking to strengthen supply chain resilience, improve access to growing population centers, modernize facilities, and support ongoing e-commerce growth.
John Morris, President of America’s Industrial & Logistics division, believes this trend will continue throughout 2024. He noted that businesses are shifting from holding excess safety stock to positioning inventory closer to customers.
As hub-and-spoke fulfillment models expand, both mid-sized and large industrial facilities are expected to benefit.
Investment Activity Gains Momentum
Investment demand has also improved. Riley explained that cap rates for value-add and core-plus industrial assets have compressed below debt neutrality levels.
As investor demand exceeds available inventory, bid-ask spreads have narrowed significantly. In many cases, transaction pricing is now surpassing initial projections.
Construction Slows After Record Year
After reaching a record 413 million SF in 2023, industrial construction activity slowed considerably. By the end of the year, projects under development had declined to 208.4 million SF.
Although vacancies are expected to rise in 2024, landlords may offer incentives and concessions while available supply remains above demand.
Despite these challenges, CBRE forecasts a 5% increase in lease transaction volume this year. The company believes the slowdown in development provides occupiers with opportunities to secure available space before market conditions tighten again.
As vacancies gradually decline, CBRE expects more landlord-friendly conditions to emerge in 2025.
Top U.S. Markets for Industrial Leasing
Southern New Jersey and Eastern Pennsylvania led the nation in industrial lease transaction volume during 2023, recording 33.4 million SF of activity.
Other leading markets included:
- Dallas-Fort Worth: 32.4 million SF
- Inland Empire: 31.2 million SF
- Chicago: 29.5 million SF
- Atlanta: 16.9 million SF
- Indianapolis: 15.3 million SF
- Savannah: 13 million SF
- Central Valley: 11.7 million SF
- Memphis: 11.6 million SF
- Louisville: 11.5 million SF
Savannah stood out as the fastest-growing industrial market among the top-performing regions.
Outlook for 2024
CBRE remains optimistic about the industrial sector despite higher vacancy rates and slower development activity. Strong occupier demand, improving investment conditions, and evolving supply chain strategies are expected to support leasing activity throughout 2024 and beyond.
Source: https://www.globest.com/