U.S. Industrial Leasing Down A 'Staggering' 47% From Last Year: JLL
The industrial sector is still delivering a wave of development across the country that started during the pandemic-era boom, but new data shows demand is not keeping up with the pace of new supply.
The U.S. industrial real estate market recorded 112.6M SF of leases in the second quarter, down 46.9% from the same period last year, according to a report released Wednesday by JLL, which called the leasing decline "staggering."
"In the midst of rising inflation and economic uncertainties, industrial markets across the country posted sluggish figures compared to one year ago," the report's authors wrote.
The total square footage of industrial development delivered across the country in the second quarter was up 20.6% from last year, totaling 128.7M SF, according to the report. But the pre-leasing rate for newly delivered space dropped from 63.6% in Q2 2022 to 39% last quarter.
JLL's report found the U.S. industrial vacancy rate increased to 4.2%, up from 3.8% in the first quarter and 3.4% at the end of 2022. The real estate services firm said it expects the lower pre-leasing rate will lead vacancy to keep rising in the coming quarters. The sublease availability rate also doubled from 0.3% to 0.6% in the second quarter.
Top industrial owners have said they see the market returning to the pre-pandemic norms after experiencing a blistering pace of growth from 2020 to 2022.
"Demand, supply, rental growth, all of those things are trending back to 2019," Prologis CEO Hamid Moghadam said on a July 18 earnings call. "If you take '20 to '22 out of the picture, and imagine that in 2019 somebody told you that in 2023, you'd still be talking about the dynamics of a 2019 market, I would be jumping up and down, happy about that.”
While the overall level of industrial demand may be returning to past levels, the makeup of that demand looks different.
The trend of companies shifting manufacturing operations from Asia to the U.S. or Mexico, known as reshoring and nearshoring, has led to a surge in demand for manufacturing facilities, JLL's report said. It found manufacturing leasing activity in the U.S. increased 114% year-over-year in the second quarter. And the 18.1M SF of manufacturing leases signed in the first half of this year already surpassed the full-year totals in 2022 and 2021.
"As the demand for [electric vehicles] and batteries continues to expand, the manufacturing and automotive leasing landscapes are expected to keep growing," the report said.
