Asking Rents Jump in Several Industrial Markets Despite Rising Vacancy Rates
The average asking rent growth for the sector was 6% last year.
Despite rising vacancy rates, average asking rent growth in the industrial space sector rose 0.3% quarter-over-quarter in the fourth quarter of 2023. In addition, rent growth was recorded at 6.0% year-over-year in that same quarter. This marks a record $10.24 per square foot increase, according to a report from CBRE.
Average asking rents increased significantly in several major markets last year, in fact, including the Pennsylvania I-78/81 Corridor, at 41.2%, Houston, at 30.9%, Indianapolis, 20.6%, and Dallas-Ft. Worth, 19.3%. While concerns about the economy, interest rates, and consumer spending caused many in the industrial real estate sector to contain spending, these areas experienced a different reality.
But while average asking rent rose, average taking rent fell by 3.5% quarter-over-quarter. However, it was 13.8% higher than a year ago.
At the same time, overall industrial space absorptions cooled in 2023, amid record new construction. In fact, annual leasing activity fell by 8.8% year-over-year to 790.3 million square feet. Of that total, 267 million square feet was in lease renewals. However, there was an uptick in the fourth quarter, as leasing activity totaled 182.7 million square feet, up 15.4% over the fourth quarter of 2022.
Net absorption in the industrial sector was 37.2 million square feet in the fourth quarter, with an annual total of 238.9 million square feet. This annual total was less than half of the 526.8 million square feet absorbed in 2022.
In addition, sublease availability increased by 11% quarter-over-quarter to 178.3 million square feet. This is the highest amount since the Global Financial Crisis.
In the fourth quarter of 2023, construction completions totaled 159 million square feet. However, 69% of the completions were vacant, pushing the overall industrial vacancy rate up to 4.8%. Completions reached a record 612.2 million square feet for the year.
Construction starts fell for the fifth consecutive quarter to 46.3 million square feet in the fourth quarter of the year. This is the lowest quarterly total since the onset of the pandemic. It is also down by 46% from a year ago.