TAG Industrial Watch: January 6, 2024

Going into 2024, the general consensus among Commercial Real Estate experts is that the office sector is admittedly a mess right now, but everything is fine everywhere else. Unfortunately, the data shows that this narrative is far from reality when it comes to the industrial market. In 2023, annual net absorption (the most important market indicator for industrial) across the top 50 metros slowed by 62 percent to the lowest level since 2011 at roughly 165 million square feet. Interestingly, during the month of December, demand started to contract into negative territory. When it comes to sales activity, 2023 transactions dropped 40 percent annually, also to the lowest level since 2011 with fewer than 9,000 properties trading hands (CoStar).

The fundamentals and sales activity of the industrial market are more indicative of a severe recession than a return to “normalcy.” While optimism remains high that interest rate cuts will allow the market to rebound, this hope defies history. For example, in the midst of the 2008 Housing Crisis, the Federal Reserve cut interest rates on bank-to-bank loans, yet mortgage rates continued to rise and the market crashed even after borrowing costs started falling. Industrial investors should take heed of this lesson and act now while property values are still high.

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