U.S. Industrial Market Reaches a Turning Point: Stabilization on the Horizon
After years of rapid growth and high volatility, the U.S. industrial real estate market appears to be stabilizing. Vacancy rates are increasing at their slowest pace since 2022, construction has significantly slowed, and rents are beginning to plateau. What does this mean for investors, tenants, and the broader CRE market?
Industrial Vacancies: A Slowing Climb
As of Q3 2024, the national industrial vacancy rate reached 6.6%, with projections indicating a peak of 6.8% by mid-2025 before starting to decline. This marks a shift from the rapid increases seen over the past few years, suggesting the market is edging closer to equilibrium.
Construction Pipeline in Freefall
The industrial construction pipeline has contracted drastically, with projects under construction dropping 53% since their peak in 2022. In Q3 2024 alone, only 76M SF of new space was delivered—a 54% drop from the same period last year. By mid-2025, construction levels are expected to fall below pre-pandemic averages, a key indicator of market recalibration.
Rent Growth: The Plateau Effect
While rents have grown 9% year-over-year, reaching $11.08 per SF, the last quarter saw rents plateau, with declines in 15 markets. Experts predict that rent growth will return to historical averages of 2%-7% annually through 2025 and 2026, a marked shift from recent double-digit increases.
Regional Highlights
Austin leads the nation with 17.2M SF under construction, accounting for 18.7% of its inventory.
The South region dominates national construction with 140.6M SF underway but also holds the highest vacancy rate at 7.8%.
What Lies Ahead?
The combination of slowing construction and stabilizing rents indicates the industrial market is nearing an inflection point. However, broader economic uncertainties—such as interest rates and consumer demand—may influence the pace and scale of recovery.
Stay ahead of the curve by understanding these market dynamics and uncovering investment opportunities.
While challenges remain, the industrial market is showing early signs of recovery. As we approach 2025, the focus will be on how market players adapt to this period of recalibration. For investors, this could be the perfect time to position themselves for the next growth phase.