Industrial Sector Cools, Manufacturing Heats Up

Following record high demand and rent prices notched during the pandemic, the industrial sector’s dynamics are shifting and demand is cooling, finds a new U.S. industrial market update from Savills.

Some predictions about where things are headed from here:

• Vacancy rates are on the rise. While the market is still historically tight, vacancy rates are inching higher as occupiers take less space and sublease availability increases.
• New construction slows. Construction activity is slowing in the sector, with new starts down 38% since this time in 2022. Given the interest rate uncertainty impacting the entire real estate industry and the danger of oversupply—particularly in Sun Belt markets—new development has started to halt.
• Port volumes are down. Ports around the country are seeing lower container volumes, with the West Coast most impacted by the drops.
• Manufacturing poised for growth. Despite economic headwinds, manufacturers remain poised for long-term growth due to the reshoring of production, especially electric vehicles. At the same time, e-commerce companies’ demand for new space will drop as growth in the sector slows.
• Occupiers gain leverage. Market conditions should afford tenants more options as well as leverage in negotiations. Savills expects to see rents continue to stabilize and more flexible deal terms, including landlord concessions, on the horizon.