Industrial property sales in 2023 have remained on par with last year’s trajectory, with transaction volumes still capped at $74.3 billion. That is a vigorous 14.7% jump from a year ago. It is indeed far from the all-time high of $129.8 billion in 2021. The industrial real estate sector is going through a once-in-a-lifetime transformation. Demand for industrial space has fallen off a cliff, suggesting we may be nearing an inflection with the market.
The sale price completed industrial trades was up 6% over the 2022 average sale price. In the first six months of this year, the manufacturing sector alone absorbed 27 million square feet of industrial space. What that means is that the second quarter was not an aberration, but a worrying trend. Demand decreased by 11.3 million square feet — the first quarterly negative number since 2010.
In July, the national industrial vacancy rate tanked to 9.1%. This is a 10 basis point increase from June and a shocking 270 basis point jump from July 2022. These figures are evidence of a profound tectonic shift in market fundamentals that will inform investment and development strategies in the years to come.
NAIOP further predicts that absorption rates will make a strong return beginning in the second quarter of 2026. They forecast full-year absorption to be at about 119.3 million square feet. Net absorption is expected to stay “virtually stagnant” for the second half of this year.
“Demand for industrial space is expected to recover somewhat after occupiers have time to adjust to a new tariff regime.” – NAIOP report’s authors
Despite the potential for recovery, the NAIOP report’s authors caution that “higher tariffs and slowing employment growth will likely result in slower demand growth than that experienced from 2020 to 2022 or in the six years that preceded the pandemic.”
Peter Kolaczynski, director for Yardi Research, provided insight into the evolving landscape of industrial investments:
“We’ve watched the industrial investment market move from darling to resilient over the past few years, but we anticipate activity and interest to ramp up with the expectation of economic clarity coupled with growing demand for space.”
In-place rents have been very robust, with a 6.1% YOY increase. Looking ahead, another 109.7 million square feet of absorption is expected in the first half of 2027, suggesting potential growth on the horizon.