US Industrial Real Estate Vacancy is Worst in 10 Years

The party’s over for warehouses.

Following an astounding run for the nation’s industrial real estate market, the vacancy rate reached 7.4 percent in the third quarter — the worst in 10 years and 350 basis points higher than two years ago, according to a Savills report.

Net absorption dropped to 30 million square feet, the lowest year-to-date total since 2016, signaling a slowdown in leasing activity. Savills expects leasing demand to pick up again after this year’s election, with a potential rebound in 2025.

While rental growth in the industrial sector was exponential just before and especially during the pandemic, that trend appears to have plateaued in part because developers responded to demand by adding lots of warehouse space.

Rents have remained flat nationally, with some individual markets experiencing pockets of rent reductions.

A key issue facing the market is the growing amount of sublease space. Sublease availability reached a record 198.7 million square feet last quarter, a 45 percent year-over-year increase. In northern New Jersey, one of the nation’s most important industrial markets, the increase was 37 percent, contributing to a 1 percent decline in the average asking rent.

However, the pace of sublease space growth is slowing nationally, rising just 8.8 percent in the quarter compared to an average quarterly growth rate of over 20 percent last year.

Industrial vacancy increased to 6.8 percent in the Chicago market from 5.1 percent a year ago. Absorption was negative in the Los Angeles area for the eighth quarter in a row, with a net of 2.2 million square feet becoming available, and vacancy rose to 6.1 percent from 4.1 percent a year earlier. In Inland Empire, vacancy hit 9 percent, up dramatically from 5.2 percent in the third quarter of 2023 — mostly because of new space being added.

A separate Savills report found that manufacturing activity remains strong in North America and that clean energy projects are making up a larger share of the sector, even as job announcements in manufacturing have slowed this year.