The U.S. industrial real estate market is stabilizing, with vacancy rates nearing peak levels at 6.7% in 2024. Net absorption reached 135 million square feet but remains below recent highs. New supply has slowed significantly, dropping to its lowest level since 2021. Rent growth is modest, with some markets seeing declines. In 2025, absorption is expected to rebound, vacancy rates to decrease, and demand for new construction to rise, driven by e-commerce, nearshoring, and third-party logistics providers.
Key Takeaways in Q4
Q4 net absorption reached 36.8 msf, up 10.5% QOQ, bringing the 2024 total to 135 msf, in line with market expectations.
Q4 industrial deliveries fell for the second straight quarter to 85.3 msf, the lowest since Q2 2021. In 2024, 425 msf was completed, with 78% speculative, contributing to rising vacancy rates in many markets.
The vacancy rate rose 20 bps in Q4 to 6.7%, the smallest increase since late 2022, suggesting the market may be nearing peak vacancy.
Vacancy Growth Slows, Approaching Peak Levels
Overall vacancy rose 150 bps in 2024 to 6.7%, driven by vacant speculative supply, but the pace of increase slowed significantly in Q4, suggesting a potential peak in early 2025 as new completions decline. Vacancy remained 30 bps below pre-pandemic levels, with half of tracked markets below 6.0%. However, markets with high speculative development like Austin, Phoenix, Greenville, and Las Vegas saw double-digit vacancy rates. Smaller industrial spaces (under 100,000 sf) remained tight at 3.9%, while big-box spaces (300,000+ sf) hit 10.7%, reflecting heavy speculative deliveries. Sublease space additions slowed, with Q4 availability rising just 5.0 msf, and only a few markets saw notable increases.
Net Absorption Grows but Trails Recent Highs
Despite economic challenges, the U.S. industrial market remained resilient, with 135 msf of net absorption in 2024, driven by stronger demand in the second half of the year. In Q4, over half of the tracked markets saw positive occupancy growth, while Columbus (-3.6 msf), Los Angeles (-2.1 msf), and Central Valley (-2.0 msf) led losses as companies consolidated operations. Though absorption slowed from 2023, Phoenix, Savannah, Salt Lake City, and St. Louis posted 35%+ YOY growth.
New Supply Drops to Lowest Level Since 2021
New completions fell for the second straight quarter to 85.3 msf, the lowest since mid-2021, with 59% concentrated in the South. Supply growth in 100,000-300,000 sf facilities led the year, while the construction pipeline shrank 36% YOY to 290.5 msf, reflecting fewer groundbreakings and steady deliveries. Warehouse and logistics dominate 85% of projects, with build-to-suit (BTS) making up one-third. Speculative construction remains focused on 100,000-500,000 sf spaces, while 1+ msf warehouses account for just 7%. Some markets bucked the trend, with Reno (+374%), Orange County (+64%), and Louisville (+38%) seeing pipeline growth.
Industrial Rents Rise Slightly, but Some Markets See Declines
The U.S. average industrial rent increased 0.9% QOQ to $10.13 psf, with annual growth at 4.5%, driven by the South's 6.0% YOY increase. Premium pricing on new speculative space contributed to some gains, but 30% of markets saw annual declines, especially along the West Coast, where Los Angeles, Inland Empire, and Puget Sound – Eastside posted YOY drops over 10%. Despite short-term softness, long-term rent growth remains strong, with 43% of markets up 50%+ over five years, and six markets doubling rates since 2019, keeping lease renewals costly even in softening areas.
2025 Outlook
Industrial Market Set for Growth in 2025 - Despite tariff and geopolitical risks, the U.S. industrial market remains strong. With a shrinking construction pipeline and slowing speculative deliveries, vacancy rates are projected to peak early in 2025 before declining to the mid-6% range by year-end.
Absorption to Rebound in 2025 - Net absorption is expected to reach 200 msf as leasing activity strengthens and consolidations ease. E-commerce growth, consumer confidence, and nearshoring will drive momentum, especially in H2 2025 and into 2026.
Rent Growth Expected to Slow Before Rebounding - asking rents are expected to rise just over 2% in 2025-2026 before returning to the 3% range, with growth varying by market.
Supply Constraints Loom as Demand for New Construction Grows - with large occupiers favoring new builds for efficiency, a smaller development pipeline may create supply shortages in select markets.
Occupiers are prioritizing warehouse efficiency, supply chain resilience, and evolving consumer needs.
Demand for new space—led by third-party logistics (3PL) providers—will rise, increasing vacancy in older buildings.
Retailers and wholesalers turn to 3PLs for import flexibility, capital preservation, and a focus on core operations. Growing outsourcing, driven by labor disruptions, weather events, and geopolitical shifts, are forecasted to keep 3PLs’ share of industrial leasing near 35% in 2025.
Companies will continue a flight to quality in 2025 to facilitate their use of automation and AI and provide more employee amenities.
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