A number of commercial brokerage firms recently released reports on the U.S. industrial markets in the fourth quarter of 2024 and their respective outlooks for the sector in 2025. They seem to be in agreement that despite a downturn in new development to more normal levels, the industrial real estate market appears to be headed toward growth in 2025.

Both Cushman & Wakefield and Colliers in separate market reports on the dynamics of the fourth quarter 2024 industrial real estate market, predict new construction to continue to decelerate, vacancy rates to stabilize and asking rent increases to slow down as the industry sees the once inflated new development pipeline continue to thin out in 2025.

Cushman & Wakefield noted that despite the specter of high interest rates, inflation, labor disputes and economic uncertainties in 2024, “the U.S. industrial market remained resilient, with modest growth persisting.”

Among some of the key take aways from the Cushman & Wakefield report included:

·       Net absorption totaled 36.8 million square feet in the fourth quarter, up 10.5% quarter-over-quarter. For 2024, 135 million square feet of industrial space was absorbed.

·       Construction deliveries decelerated for the second consecutive quarter, with 85.3 million square feet of new supply added in the fourth quarter—the softest quarter for deliveries since the second quarter of 2021. More than 425 million square feet of industrial facilities were completed in 2024, 78% of which were speculative, driving vacancy rates higher in many markets.

·       The overall vacancy rate ticked up by 20 basis points in the fourth quarter to 6.7%. This was the smallest quarterly increase since the market cooldown began in late 2022—a sign that the market may approach peak vacancy soon.

·       Of the 84 markets tracked by Cushman & Wakefield Research, 54 reported positive occupancy growth in the fourth quarter, including 11 markets with more than 1 million square feet of absorption. However, five markets yielded net losses exceeding 1 million square feet, including Columbus, OH (-3.6 msf), Los Angeles (-2.1 msf), Central Valley, CA (-2.0 msf), Northern New Jersey (-1.2 msf) and Orange County, CA (-1.1 msf) as occupiers consolidated operations to cut costs and improve efficiency. Compared to 2023, most markets posted a deceleration in absorption totals in 2024.

Colliers, which estimated the national industrial vacancy rate at year’s end at 6.8%, stated that the U.S. industrial market is moving toward balance. “The gap between new supply and tenant demand narrowed during 2024—developers delivered 400 million square feet, 34% below the record 607 million square feet completed in 2023. Net absorption, a key measure of demand, also declined by 27% to 168 million square feet,” the report stated.

Colliers continued, “Consequently, the U.S. vacancy rate rose by 126 basis points to 6.8%, as construction activity normalized to pre-pandemic levels of below 300 million square feet. With supply and demand nearing equilibrium in 2025, the vacancy rate is expected to peak at around 7% before starting to fall again.”

2025 Outlook

Cushman & Wakefield had four key predictions for the industrial markets in 2025:

·       Despite potential headwinds, such as new tariffs on imports and geopolitical risks, the U.S. industrial market is poised for growth in 2025. As the construction pipeline continues to thin out and as speculative deliveries slow, vacancy rates should stabilize, likely peaking in the first half of the year before slipping downward to the mid 6% range by year-end and continuing to inch lower.

·       Overall absorption is projected to increase to around 200 million square feet in 2025 as leasing picks up steam and tenant consolidations moderate. Tailwinds, such as e-commerce, strong consumer confidence, and nearshoring and onshoring should propel the marketplace, especially in the second half of the year and into 2026.

·       Asking rent growth is anticipated to slow to just over 2% in 2025 and 2026 before rising back to the 3% range (growth will continue to be market dependent).

·       As larger occupiers continue to seek new construction for more efficient operations, the smaller development pipeline will likely lead to supply constraints in some markets.

Colliers offered the following insights into 2025 in its industrial market report:

·       The U.S. economy remains strong by most measures, with low unemployment, consumer spending surpassing expectations, positive GDP growth, and signs of improvement in manufacturing.

·       However, challenges persist, including persistent inflation, the lowest hiring rate since 2010, and uncertainties surrounding tariffs, migration, and policies introduced by the new administration.

·       Uncertainty also hit the U.S. industrial market, and the sector has been carefully navigating the balance between supply and demand to maintain low vacancy rates and drive rent growth.

·       Many tenants deferred real estate decisions following the e-commerce boom of the pandemic, when vacancy bottomed at 3.6% nationally and pushed developers to break ground on record levels of new construction.

·       As construction activity returns to pre-pandemic levels and vacancy rates plateau, these delayed real estate decisions could lead to pent-up demand, provided the economic outlook remains stable.

·       Fortunately, developers decided to scale back, reducing the total space under construction from 711 million square feet to 295 million square feet in just two years.

·       As a result, markets like Chicago, Salt Lake City, and Cleveland have already achieved equilibrium between supply and demand, with vacancy rates beginning to decline again. These balanced markets are poised to lead the way into the next real estate cycle.