Industrial deal volume was flat during the second quarter at $22.87 billion, a dramatic slowdown following two quarters of double-digit growth. The slowdown is likely due to caution amid rapidly shifting trade policy, an uncertain economic outlook and an abundance of available space, according to MSCI.
Warehouse operators have faced slower leasing activity during the past three years, as retailers, The Wall Street Journal noted, with manufacturers and other tenants taking a more cautious approach to new space following a period of expansion during the pandemic. A wave of new supply is exacerbating a supply overhang in the industrial sector, as more than 1.9 billion square feet of warehouse space has been delivered in the past four years.
The average warehouse vacancy rate increased to 7.1% during the second quarter, the first time it has exceeded 7% since 2014, according to Cushman & Wakefield data. What used to be a six-month lease-up time frame is now extending to a full year and even 18 months in some cases, according to the article.
The industrial pipeline has contracted more recently, with nearly 60 million square feet of new warehouse space completed in the second quarter, down 47% from last year. That represents the lowest level since the first quarter of 2019, JLL data shows.
Strong demand during the pandemic has pushed warehouse prices up from their 2019 level of $5.96 per square foot to $10.06 per square foot during the second quarter. But uncertainty around rent growth trends is causing warehouse investors to take a more cautious approach.
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