Industrial Sector: 2024 Key Takeaways
The U.S. industrial real estate market in the fourth quarter of 2024 exhibited signs of stabilization, with key indicators reflecting a balanced interplay between supply and demand.
Net Absorption and Demand
Net absorption totaled 36.8 million square feet (msf) in Q4 2024, marking a 10.5% increase from the previous quarter. For the entire year, the market absorbed 135 msf, aligning closely with Cushman & Wakefield's forecasts. This consistent absorption underscores the sustained demand for industrial space, despite broader economic headwinds.
Construction Activity and Supply
Construction deliveries decelerated for the second consecutive quarter, with 85.3 msf of new supply added in Q4—the lowest quarterly delivery since Q2 2021. Throughout 2024, over 425 msf of industrial facilities were completed, with speculative developments comprising 78% of this new supply. This influx of speculative space has contributed to rising vacancy rates in several markets.
Vacancy Rates
The overall vacancy rate edged up by 20 basis points (bps) in Q4 to 6.7%. Notably, this represents the smallest quarterly increase since the market began cooling in late 2022, suggesting that vacancy rates may be nearing their peak. Despite the uptick, vacancy remains 30 bps below pre-pandemic levels, indicating a relatively tight market.
Regional Variations
Regional disparities were evident, with markets such as Phoenix, Savannah, Salt Lake City, and St. Louis experiencing year-over-year growth in net demand exceeding 35%. Conversely, markets including Columbus, Los Angeles, Central Valley, Northern New Jersey, and Orange County faced net occupancy losses exceeding 1 msf, as occupiers consolidated operations to enhance efficiency.
Rental Rates
The national average asking rent for industrial space rose by 0.9% quarter-over-quarter to $10.13 per square foot (psf). Annual rent growth was recorded at 4.5%, with the South region leading at a 6.0% year-over-year increase. However, approximately 30% of U.S. markets experienced annual rent declines, notably along the West Coast, where markets such as Los Angeles, the Inland Empire, and Puget Sound – Eastside saw year-over-year rent decreases exceeding 10%.
Construction Pipeline
The construction pipeline showed signs of easing, with 290.5 msf underway—a 36% reduction from the same period last year. Of this, 85% is designated for warehouse and logistics space, with build-to-suit projects accounting for one-third of the total square footage. This decline in new construction activity may help balance supply and demand dynamics in the coming quarters.
Conclusion
The Q4 2024 data indicates a U.S. industrial market that is adjusting to a new equilibrium, with moderated supply growth and steady demand contributing to a more balanced landscape. While certain regions face challenges due to speculative overbuilding or tenant consolidations, the overall market fundamentals remain solid, supported by consistent absorption rates and controlled vacancy increases.