The outlook for the industrial real estate market is looking brighter than expected, according to the latest NAIOP Industrial Space Demand Forecast.
The forecast has been revised upward from August 2022 to account for the resilient economy and amended historical net absorption data, NAIOP, the commercial real estate development association, said.
Despite rising interest rates and the growth of new space being developed, low vacancy rates will continue to support growth in rents and property values.
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Net absorption of industrial space in the past two quarters of 2022 was 176.1 million square feet, down from 236.4 million square feet in the first two quarters of the year. Due to favorable economic headwinds, NAIOP projects that quarterly net absorption of industrial space will average 79.0 million square feet over the next two years.
Total net absorption for 2023 is forecast to be approximately 310 million square feet, and full-year absorption in 2024 is forecast to be around 323 million square feet.
Several factors are attributed to the improved forecast, including a supply-demand dynamic that is keeping rents and property prices high; strong demand for industrial space around ports on both the East and West Coasts due to shifting supply chains; and a continuing e-commerce boom.
"We had been expecting a more severe slowdown in the industrial sector, but conditions remain stronger than anticipated," said NAIOP president and CEO Marc Selvitelli in prepared remarks. "We are pleased that the sector remains strong as supply chain issues are being resolved and the consumer trend toward online retailing shows no signs of returning to pre-pandemic levels."
However, amid softening economic conditions, NAIOP expects the slowdown in industrial space absorption that began in the last half of 2022 to continue into 2023.
To arrive at the forecasts, NAIOP's statistical model takes into account such factors as lagged net absorption, real gross domestic product growth, inflation and output gaps, monetary policy, and seasonal effects.
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