With demand muted and speculative construction completions persisting at a healthy rate, the industrial vacancy rate ticked higher by 60 basis points to 5.2 percent, according to Cushman & Wakefield’s fourth quarter 2023 industrial report.

Although this is the first time the rate has surpassed the 5 percent mark since third quarter 2020, it remains 120 basis points below the long-term 15-year average of 6.4 percent.

“While the new development pipeline has exceeded demand, we are clearly seeing signs that construction is slowing in response to market conditions and tempered absorption totals,” says Jason Price, head of logistics and industrial research at Cushman & Wakefield. “Leasing velocity remains steady, but occupiers continue to shed excess space in some markets, leading to slower growth.”

On the market level, 58 of the 83 markets tracked by C&W reported positive absorption in the fourth quarter, 19 of which surpassed 1 million square feet of occupancy gains, led by Houston (6.4 million square feet), Pennsylvania’s I-81/I-78 Corridor (4.9 million square feet), Southern California’s Inland Empire (3.5 million square feet), and Las Vegas (3.2 million square feet).

New deliveries totaled 156.3 million square feet in the fourth quarter, down 9.8 percent from the record high achieved in the third quarter (173.2 million square feet). This was the second-highest completion total on record, fueled mainly by vacant, speculative deliveries across all four regions. This also marked only the fourth time that the United States delivered more than 150 million square feet quarterly. For the year, 609.6 million square feet of new industrial product was delivered nationwide, surpassing the previous record in 2022 by 17.6 percent.

Overall net absorption remained muted in the fourth quarter, with 41.1 million square feet of space absorbed, down from the 52.5 million square feet recorded in third quarter. Year-to-date net absorption finished at 224.3 million square feet, which is in line with the pre-pandemic 10-year average (2010–2019) of 224.8 million square feet. Earlier this year, Cushman & Wakefield forecasts predicted annual U.S. net absorption at 218.9 million square feet, just 2.5 percent lower than what was registered.

Throughout 2023, net absorption was propelled by new industrial product delivered with tenants in place — either build-to-suit or speculative pre-leased space.

New leasing activity remained steady at 133.8 million square feet, down only 2 percent from the third quarter total. While quarterly demand fell in the South region in the fourth quarter, the other three regions recorded increases in new leasing activity throughout the fourth quarter. Meanwhile, the U.S. industrial market yielded 588 million square feet of new leasing activity in 2023, the fourth strongest year on record. This was the eighth consecutive year in which the nation posted more than 550 million square feet of new transactional volume.

“On an annual basis, rent growth moderated to 10 percent, the fifth straight quarter in which the annual rent growth rate declined. We expect rent growth throughout most of the country to continue to slow in 2024 as we previously forecast,” says Price.

The Northeast region continued to see rents rise at a healthy rate year-over-year at 16.1 percent, while the other three regions posted annual growth rates from 5.5 percent to 6.6 percent.

Andrea Zander is editor of Institutional Real Estate Americas.