New Report: Colliers Studies the 25 Largest Industrial Real Estate Markets in the US Author: Jeff Berman October 4, 2024 Industrial real estate firm Colliers recently released a report titled "The Forces Driving U.S. Markets - Q2 2024," focusing on significant findings regarding vacancy rates, new supply, demand, and rental growth in the top 25 US industrial markets ranked by inventory volume. Colliers observed that these 25 largest markets account for 76% of the total U.S. industrial market among the 77 markets they monitor. A key finding from the report is that developers are still delivering modern facilities at what Colliers describes as a "frenzied" pace compared to inventory levels. Over the past four quarters, US industrial inventory grew by an annual rate of 4.1%, while the top 25 markets saw an average annual growth rate of 3%. A spokesperson for Colliers told LM, "The current surge in development and inventory growth is largely due to record industrial demand from 2021 to 2022." "Due to the time required for project approvals, starts, and completions, many of today's delivered buildings are a response to net absorption post-pandemic. Although the pace of inventory growth has slowed," said the spokesperson. Regarding new supply, Colliers noted that after total construction square footage decreased by 50% over the past year, new supply in the largest markets fell year-over-year by 18%. This decline outpaced the overall US industrial market, indicating that the top 25 US industrial and logistics markets may recover faster than others. On the key factors driving the 18% annual drop in new supply, the spokesperson attributed the slowdown in construction starts and development activity to high interest rates, increased building costs, and concerns about vacancy and demand. "This is good news for the market," said the spokesperson. "With a reduction in new supply, balance between supply and demand will be restored, and vacancy rates are expected to peak more quickly than when development activities were robust." Meanwhile, Colliers noted that despite rental growth slowing from its previous annual increase of 20%, rents in the top 25 markets grew at a rate of 5.3% year-over-year in Q2 2024. The company added that while some coastal market rents have declined, future rental growth remains expected according to their forecasts. "Rental growth will continue to slow down, and rent contraction may occur in more markets over the next few quarters," said the spokesperson. "Overall, rental growth is still anticipated in the US for the coming years, driven by supply-demand rebalancing. Vacancy rates are expected to peak in the next few quarters before declining again. Over the next two years, US industrial rent growth is forecasted to align with historical average rent growth, ranging between 3% and 5%." The report also examined how record new supply has pushed up vacancy rates in the top 25 markets, increasing by 202 basis points year-over-year for eight consecutive quarters to reach 6.4%. Notably, 67% of newly delivered supply so far is located within these top 25 markets, while the remaining 52 markets have a vacancy rate of 6.6%. In terms of demand, Colliers reported that demand fell year-over-year by 55% in the first half of 2024. However, over 70 new lease agreements were signed so far this year, with most occurring within the top 25 markets. Colliers anticipates this will translate into increased demand growth for the second half of the year and early 2025 as tenants move into their leased spaces. Source: Logistics Management
