Monday Morning Scoop - Industrial Slowed In Q3 As Demand Wanes
Industrial Slowed In Q3 As Demand Wanes
The industrial sector began to show cracks in the third quarter, with demand waning for product as rising inflation sparked uncertainty among retail consumers, according to an analysis from Colliers.
“Despite headwinds, the U.S. industrial sector remains one of the top-performing commercial real estate property types,” the report notes. “Core markets continue to see healthy occupancy gains and record development signifies the confidence both owners and occupiers have for industrial product. New development records are expected in 2023 as projects continue to break ground. However, economic uncertainty remains, and demand is expected to moderate over the next 12 months.”
Demand is being driven primarily by occupiers looking to relocate or expand, but Colliers analysts say limited supply and rising rents are making some markets “cost-prohibitive” for tenants.
All told, 23 markets posted occupancy gains greater than five million square feet during the third quarter, including Chicago, Dallas, Phoenix, Houston, and Atlanta. Emerging markets like Savannah, Charleston, Reno/Sparks, and Salt Lake City showed the most growth, with Savannah posting 11.4 million square feet of occupancy gains, 10.3 million square feet of new supply and 19.7 million square feet of projects underway.
Supply rose 24.4% year over year in the third quarter, with a total of 331.7 million square feet completed year-to-date. Demand will continue to be driven by alternative property types in 2023, as data center and food and beverage industries claim a higher market share of industrial space.
“The outlook for the remainder of 2022 continues to be optimistic, although industrial activity is expected to ease as economic conditions worsens,” the report notes. “Companies continue to reassess their supply chain strategies, and outsourced distribution will become a more appealing option to some occupiers. This strategy allows product to be kept closer to the end consumer, shortening delivery times and allowing businesses to scale efficiently. With reverse logistics responsible for $563 billion of returned merchandise in 2021, outsourced distribution also adds value to the tenant by supporting this aspect of the supply chain.”
By: Lynn Pollack