The rapid expansion of industrial facilities during the pandemic has now outpaced current occupier needs, which has translated into increased vacancy rates and ultimately a more cautious approach by developers.
Though industrial construction activity has dropped and will continue to remain subdued throughout the year, the deceleration should not particularly affect manufacturing construction, which also falls under Cushman & Wakefield’s industrial category, according to Jason Price, senior director of research for the U.S. industrial sector at Cushman & Wakefield.
Instead, Price said “the slowdown is primarily within the warehouse and distribution sector,” while “manufacturing construction has been relatively steady.”
Many contractors remain bullish about the manufacturing sector’s long-term prospects, despite a recent dip in construction activity. In fact, general contractors in the space insist they do not feel a slump, and still foresee an acceleration in activity in the near term.
But that’s not the sentiment for warehouse and distribution projects, said Price.
That’s because along with normalizing demand in the industrial market, increased interest rates, tightened standards for construction loans and overall economic uncertainty have caused starts to fall off a cliff for warehouse and distribution projects, according to a report from CommercialEdge.
Since 2020, 1.8 billion square feet of industrial space has been delivered across the U.S. That’s more than the entire previous decade, according to Cushman & Wakefield.
After an overstimulated economy pushed consumer demand for durable goods to record levels in 2021 and 2022, developers constructed industrial facilities at an intense pace to meet occupier demand amid historically low vacancy rates.
Now, occupier demand has faded, leaving a little more than half of the square footage built in 2023 still available for lease, pushing vacancy rates back up nationwide, according to the Cushman & Wakefield report.
Nevertheless, despite a massive drop-off from its recent starts peak, the industrial construction pipeline remains above long-term averages.
That means the window of opportunity for occupiers may be short-lived, as it is expected many markets will have a resurgence in demand in 2025 and that the new supply will be absorbed more quickly than the past 18 months, according to Cushman & Wakefield.
“Deliveries will fall in coming years due to barriers of entry, higher construction costs and developers putting the brakes on new projects until the market fundamentals and lending environment improve,” according to the Cushman & Wakefield report. “However, as the supply slows, and as leasing intensifies alongside a decrease in vacancy rates, rental rate growth in most markets is expected to swell.”
Our library of marketing materials is tailored to help construction firms like yours. Use it to benchmark your performance, identify opportunities, stay up-to-date on trends, and make strategic business decisions.
Join Our CommunityThe rapid expansion of industrial facilities during the pandemic has now outpaced current occupier needs, which has translated into increased vacancy rates and ultimately a more cautious approach by developers.
Though industrial construction activity has dropped and will continue to remain subdued throughout the year, the deceleration should not particularly affect manufacturing construction, which also falls under Cushman & Wakefield’s industrial category, according to Jason Price, senior director of research for the U.S. industrial sector at Cushman & Wakefield.
Instead, Price said “the slowdown is primarily within the warehouse and distribution sector,” while “manufacturing construction has been relatively steady.”
Many contractors remain bullish about the manufacturing sector’s long-term prospects, despite a recent dip in construction activity. In fact, general contractors in the space insist they do not feel a slump, and still foresee an acceleration in activity in the near term.
But that’s not the sentiment for warehouse and distribution projects, said Price.
That’s because along with normalizing demand in the industrial market, increased interest rates, tightened standards for construction loans and overall economic uncertainty have caused starts to fall off a cliff for warehouse and distribution projects, according to a report from CommercialEdge.
Since 2020, 1.8 billion square feet of industrial space has been delivered across the U.S. That’s more than the entire previous decade, according to Cushman & Wakefield.
After an overstimulated economy pushed consumer demand for durable goods to record levels in 2021 and 2022, developers constructed industrial facilities at an intense pace to meet occupier demand amid historically low vacancy rates.
Now, occupier demand has faded, leaving a little more than half of the square footage built in 2023 still available for lease, pushing vacancy rates back up nationwide, according to the Cushman & Wakefield report.
Nevertheless, despite a massive drop-off from its recent starts peak, the industrial construction pipeline remains above long-term averages.
That means the window of opportunity for occupiers may be short-lived, as it is expected many markets will have a resurgence in demand in 2025 and that the new supply will be absorbed more quickly than the past 18 months, according to Cushman & Wakefield.
“Deliveries will fall in coming years due to barriers of entry, higher construction costs and developers putting the brakes on new projects until the market fundamentals and lending environment improve,” according to the Cushman & Wakefield report. “However, as the supply slows, and as leasing intensifies alongside a decrease in vacancy rates, rental rate growth in most markets is expected to swell.”
Our library of marketing materials is tailored to help construction firms like yours. Use it to benchmark your performance, identify opportunities, stay up-to-date on trends, and make strategic business decisions.
Join Our Community