Dive Brief:
- Asking rents for U.S. warehouse and distribution space reached a record-high $9.72 per square foot in 2023, up 20.6% year over year, according to data released in January from real estate giant Colliers.
- "More rent increases are forecast while vacancy rates remain historically low, although at a more reasonable pace than the unprecedented [increase] since 2021," according to Colliers.
- In 2023, industrial real estate lease rates per square foot increased in the New York City metro area, the San Francisco Bay area and Chicago, per Colliers. Rates declined in greater Los Angeles, Philadelphia and Detroit.
Dive Insight:
A surge of new industrial real estate supply entered the market in 2023, helping ease a crunch in warehouse space. However, a dwindling construction pipeline amid higher costs and cooling demand should keep rental rates around their current level, said Stephanie Rodriguez, Colliers' national director of industrial services.
"Construction starts have dropped off significantly," Rodriguez said in an interview. "That allows the markets to sort of catch up and absorb that space that's been delivered at the end of 2023 and in the beginning of 2024. There's really not much coming in behind it."
Logistics real estate titan Prologis also expects rent rates to continue climbing as the supply pipeline dwindles. CFO Tim Arndt said on a January earnings call that the company is projecting "modestly positive rent growth aligned with inflation over the next 12 months."
Still, the pace of industrial rent growth slowed in the second half of 2023, and several markets eager for more inventory saw an increase in available space as construction projects completed, Colliers reported. The greater Los Angeles area saw its vacancy rate rise to 3.4%, up 256 basis points year over year, while the New York City metro area's vacancy rate jumped 183 basis points to 4.7%.
"The amount of product that hit the market and that stabilization in demand only leads to an increased vacancy rate," Rodriguez said.
