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Warehouse demand slows down in the US

t’s the first time the industrial vacancy rate has risen higher than the 5% mark
t’s the first time the industrial vacancy rate has risen higher than the 5% mark

Real estate services firm Cushman & Wakefield has released data on slowing warehouse demand. The US industrial vacancy rate increased to 5.2% in the last quarter of 2023.

Commercial real estate news Re Journals notes that it’s the first time the industrial vacancy rate has risen higher than the 5% mark since the third quarter of 2020. The COVID-19 pandemic unleashed an e-commerce boom, resulting in a warehouse construction frenzy.

Experts are now raising questions to determine what warning signals these data send. Is there an industrial market slowdown en route? 

The Wall Street Journal reports that the demand for storage space skyrocketed in 2020 when the e-commerce sector was fertile with opportunities to start selling goods to residents locked up under quarantine. During that time, Amazon doubled its fulfillment network as business was booming. 

According to the report by Cushman & Wakefield, developers built more than 2 billion square feet of extra storage and distribution space since 2020.

Jason Price, an industrial researcher at Cushman & Wakefield, says: “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. Leasing velocity remains steady, but occupiers continue to shed excess space in some markets, leading to slower growth.”

Reaction from the industry 

Logistics operating executive Nikhil Sathe says the market continues to show weakness in order levels. “Consumer demand is sluggish, resulting in slow restocking of inventory levels. Macroeconomic headwinds are still strong. I think 2024 will likely be a flattish year from a recovery and growth perspective.”

Co-founder and CEO of Windward, Ami Daniel, says this also raises another question regarding recent disruptions in ocean freight. “Basically, you have low inventory, meets delays of 2-7 weeks. [This results in] shortage of goods and less revenues for the said retailers.”

Warehouse availability in Australia

According to the latest available data from JLL, the surging industrial rents have ended after almost two years. This has been particularly hard for tenants, who had to fork out a 14% average rental rise in 2023.

JLL’s head of strategic research in Australia, Annabel McFarlane, told Financial Review this year is expected to return to a more balanced leasing market in Australia. “Key inner urban markets such as South Sydney, where rents have risen to a whopping $344 per sq m (up 27.4% annually), are unlikely to offer much relief to companies seeking warehouse space.”

About the author

Mia is a multi-award-winning journalist. She has more than 14 years of experience in mainstream media. She's covered many historic moments that happened in Africa and internationally. She has a strong focus on human interest stories, to bring her readers and viewers closer to the topics at hand.

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