TAG Industrial Watch: October 7, 2023

The first look at the industrial real estate market’s performance during the third quarter is now available and unfortunately, the storyline hasn’t improved. Nationwide, net absorption slowed for the third consecutive quarter to just over 30 million square feet. For context, that’s the weakest quarter for demand in a decade, followed by the second quarter of this year. The national vacancy rate jumped 50 basis points during Q3 to about 5.3% as new supply outpaced demand by a record 90 million square feet (CoStar). Of course, records were meant to be broken and while the last quarter of the year is poised to do so, it’s important to remember that the overbuilding problem is not universal.

Earlier this year, TAG was the first to observe the divergence between oversupplied big-box warehouses (over 200,000 SF) and underdeveloped small industrial properties (between 10,000 and 50,000 SF). During Q3, big-box vacancies rose to 6.4%, soaring 200 basis points year-over-year. On the other end of the spectrum, the vacancy rate for small-industrial remained low at 3.5%, an increase of only 50 basis points annually. Given that deliveries will rise to new heights in Q4, big-box vacancies may easily surpass 8%, reaching the highest level in nearly a decade. Although absorption for small-industrial has fallen into negative territory this year, the impact has been minimal. Given America’s shaky economic fundamentals, this divergence is just the beginning. This means industrial investors looking to strike it big this decade, may need to start looking small.

I N D U S T R I A L   N E W S

Industrial Sees Its Highest Level of Deliveries to Date
GlobeSt.com – September 27, 2023
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Industrial Sector Navigates Growth Challenges
Commercial Property Executive – September 29, 2023
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How Hydrogen’s $46B Surge Will Fuel Real Estate
Bisnow – October 4, 2023
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U.S. 10-Year Yield Jumps Back Near 16-Year High
After Better-Than-Expected Jobs Report

CNBC – October 6, 2023
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What A Manufacturing ‘Supercycle’ Means For Real Estate Leaders
Forbes – October 3, 2023
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R E G I O N A L   N E W S

Inland Empire Industrial Slows In Q3 Yet Remains Stable
Connect CRE – September 26, 2023
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BGO IREIT Acquires Ownership Interest In Midwest Industrial Portfolio
REjournals – September 28, 2023
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Top Markets For Industrial Deliveries In H1 2023
Commercial Property Executive – September 18, 2023
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Macy’s Fulfillment Center Marks Opening Of
1M-Square-Foot Center In Tomball

Community Impact – September 20, 2023
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UPSIDE Foods To Pump $140M Into Commercial-
Scale Cultivated Meat Plant Near Chicago

AgFunderNews – September 14, 2023
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