In 2022 and 2023, developers completed more than 1.5 billion square feet of U.S. industrial projects, a tally equivalent to adding all the existing industrial space in metropolitan Chicago!
This was the largest expansion of the U.S. industrial supply over two years in more than half a century. And with most of the developments completing construction without any tenants, the recent supply wave has also been significant in pushing up the vacancy rate for the U.S. industrial property from its all-time low of 3.8% in mid-2022 to 6.4%. While still historically low, this is a significant leveling, ultimately bringing equilibrium back to most markets.
Early 2024 data indicates that the number of projects finishing construction has begun to decline by 30% nationally compared to previous quarters. This is natural as demand cools, developers tend to stop planning/building new projects.
We predict that more prolonged reduction in industrial development completions is just
beginning. Fourteen months ago, during the first quarter of 2023, industrial construction starts had already dropped 40% from peak levels but proceeded to fall another 60% in the 12 months that followed. This suggests that quarterly new construction completions will continue to fall precipitously through at least mid-2025 and will likely remain low in the face of persistently high interest rates, signaling limited potential for a recovery in construction starts this summer.
However, the slowdown in new development completions are not expected to play out evenly across the country. In markets such as Memphis, Tennessee, Pennsylvania’s Lehigh Valley and Chicago the recent pullback in construction starts has been more dramatic. This year, the number of new local logistics properties added in these markets is expected to increase at well below half the pace set in 2023.
In contrast, developers have remained active in several other markets including Las Vegas, Phoenix and Charlotte, North Carolina, where logistics supply growth rates are expected to slow slightly or even increase in 2024.
