Industrial Space Absorption Cools Amid Record New Construction in 2023

U.S. Industrial | Q4 2023

January 30, 2024 2 Minute Read

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Executive Summary

  • Concerns about the economy, interest rates and consumer spending caused many industrial real estate occupiers and investors to curb their activity last year.
  • Annual leasing activity fell by 8.8% year-over-year to 790.3 million sq. ft., with 267 million sq. ft. of that total in lease renewals. However, Q4 leasing activity totaling 182.7 million sq. ft. was up by 15.4% over Q4 2022.
  • Net absorption of 37.2 million sq. ft. in Q4 capped an annual total of 238.9 million sq. ft.—less than half of the 526.8 million sq. ft. absorbed in 2022.
  • Sublease availability increased by 11% quarter-over-quarter to 178.3 million sq. ft., the highest amount since the Global Financial Crisis. However, this total accounts for less than 1% of total U.S. industrial inventory.
  • Average asking rent rose by 0.3% quarter-over-quarter and 6.0% year-over-year to a record $10.24 per sq. ft. Average taking rent fell by 3.5% quarter-over-quarter but was 13.8% higher than a year ago.
  • Construction completions totaling 159 million sq. ft. in Q4—69% of it vacant—pushed the overall industrial vacancy rate up by 50 basis points (bps) to 4.8%. For the year, completions reached a record 612.2 million sq. ft.
  • Construction starts fell for the fifth consecutive quarter to 46.3 million sq. ft. in Q4, the lowest quarterly total since the onset of the pandemic and down by 46% from a year ago.