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In the third quarter of 2024, the U.S. industrial market maintained its steady course of positive demand and improving supply fundamentals. Leasing and capital markets volumes have grown from the start of the year. Moreover, the construction pipeline is projected to fall to five-year lows by year-end, supporting the market’s gradual return to equilibrium.

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Economic Conditions and Demand Drivers��

• Economic indicators remain mixed, reflected in measured consumer sentiment readings. More clarity following the decisive outcome of the U.S. presidential election could boost consumer confidence, as could a likely continuation of FOMC rate cuts.
• Container traffic at U.S. ports has surged to its highest level in two years as shippers hedged against supply chain disruption and tariffs. Annualized growth in imports is forecast throughout the latter half of the year, ahead of a potential East and Gulf Coast dockworker strike in January 2025, and continuing tariff uncertainties. ��
• Manufacturing construction spending continues to hit new heights, measuring $124.4 billion in August 2024, nearly double the pre-pandemic 5-year average. The South is collecting the lion’s share of this investment.

Leasing Market Fundamentals��

• U.S. net absorption held steady from the last quarter, measuring approximately 43 MSF. Flight to quality is apparent: preleased deliveries are driving outsized contribution to total net absorption, accounting over 140 MSF of new occupancy year-to-date. This quarter, nearly half of all new leasing was for Class A space.
• Vacancy continues to rise but at a notably slower pace. Overall vacancy increased by 10 bps from the previous quarter to an average of 6.6%. Availability expanded by 30 bps to 9.0%, maintaining a typical historical spread to vacancy.��
• Annualized asking rent growth slowed to 3.1%, marking the softest pace since 2015 as new supply impacts fundamentals. Quarter-over-quarter, asking rents declined slightly for the first time in years. Contract rates have remained largely stable over the past year, though concessions are on the rise.

Capital Markets��

• The third quarter of 2024 ushered in $23.4 billion in sales volume, essentially on par with quarterly volumes one year ago �� effectively ending the two-year-plus trend of annualized quarterly declines.
• Cap rates have fluctuated within a 10-bps range so far this year, bumping up and down quarter-over-quarter. Currently in the third quarter, cap rates sit at an average of 5.5%. Spreads to BBB corporate bonds remain below long-term averages �� if much more attractive compared to recent history.��
• Private capital continues to account for nearly half of total acquisitions. Users are seeing more opportunity than they have in years, buying more volume year-to-date than in all of 2023.

Outlook

• Vacancy will rise another 10 to 20 basis points in 2025 but is near the cyclical peak �� although expected to remain in the 6% range through 2025 and into 2026. ��
• Supply �� both in deliveries, and in development �� will be under 2019 levels next year. Demand is projected to stay resolutely positive but softer than the pre-2020 baseline. ��
• Record commercial real estate loan maturities are coming due between now and 2026. However, among all property types, the industrial sector has the lowest share of potentially troubled loans maturing.