Posted on February 19th, 2024

Lease rates jumped more than 20% to reach $9.72 per square foot last year, according to data from Colliers.

A surge of new industrial real estate supply entered the market in 2023, helping ease a crunch in warehouse space. However, a dwindling construction pipeline amid higher costs and cooling demand should keep rental rates around their current level, said Stephanie Rodriguez, Colliers’ national director of industrial services.

“Construction starts have dropped off significantly,” Rodriguez said in an interview. “That allows the markets to sort of catch up and absorb that space that’s been delivered at the end of 2023 and in the beginning of 2024. There’s really not much coming in behind it.”

Logistics real estate titan Prologis also expects rent rates to continue climbing as the supply pipeline dwindles. CFO Tim Arndt said on a January earnings call that the company is projecting “modestly positive rent growth aligned with inflation over the next 12 months.”

Still, the pace of industrial rent growth slowed in the second half of 2023, and several markets eager for more inventory saw an increase in available space as construction projects completed, Colliers reported. The greater Los Angeles area saw its vacancy rate rise to 3.4%, up 256 basis points year over year, while the New York City metro area’s vacancy rate jumped 183 basis points to 4.7%.

“The amount of product that hit the market and that stabilization in demand only leads to an increased vacancy rate,” Rodriguez said.

Source: Supply Chain Dive.