Trepp | Industrial Sector Sees Record Leasing Activity in Q1

The national industrial sector recorded 249.8 million square feet of leasing activity in the first quarter, up 14% from a year ago, putting the sector on track for a record year of leasing, according to CBRE.

But absorption, or the leasing of previously vacant space, totaled just 43.2 million sf in the first quarter, well below total leasing volume, suggesting that much of the leasing activity came from tenants renewing leases or moving between buildings rather than expanding their footprints.

At the same time, 55.4 million sf of industrial space delivered during the quarter, so new supply outpaced the amount of space being absorbed by the market. It’s the 15th straight quarter in which deliveries outpaced supply.

As a result, the national vacancy rate increased to 6.7% from 6.3% last year. During the market’s peak in 2022, it was 4.7%.

Industrial properties used as manufacturing facilities comprise roughly one-third of the sector’s total inventory. That property subtype has a vacancy rate estimated at 4.3%, according to MMCG Invest, a San Francisco consultancy.

Recent manufacturing survey data indicate a broad recovery in factory activity, meaning more goods are being made domestically and moved through supply chains. And MMCG noted that demand for manufacturing space “remains solid, thanks to re-shoring,” where production of goods previously made in foreign countries has been moved back to the United States.

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Nevertheless, factories are still not operating at full capacity, meaning companies can increase production within their existing facilities before needing to expand or lease significantly more space. So, even though demand for industrial real estate is strengthening, the amount of space being taken up is still limited by available slack in the system and new supply being delivered to the market.

The national industrial sector has been working through an arguable glut of new supply, as more than 2.5 million sf of space has been delivered since 2020, according to Newmark.

The construction pipeline peaked in 2022 at about 700 million sf and has shrunk considerably since then, totaling 237.2 million sf in the first quarter.

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