Anticipating the Squeeze: Warehouse Space Availability May Tighten in 2024

The warehouse industry is booming with interest, overshadowing its far less popular sister, office space. As if the divide in demand couldn’t get any worse, in May, the annualized monthly rate for new manufacturing facilities reached record-breaking levels ($194 billion), doubling in the two years since 2021.

Competition for industrial space has been tight as tenants clamor for the best space. Of course, developers have been racing to satisfy the demand with a robust construction pipeline.

But production may finally be catching up. Earlier this year a slight dip in leasing volume put construction at hold until the market absorbs the space. Now, warehouse tenants may find themselves in a sweet spot, the calm before the next leasing storm. Because construction slowdowns are likely to bring a bottleneck of warehouse space availability in 2024. Let's discuss what warehouse tenants need to know to remain on top.?

Warehouse Leasing Environment

Back in Q1 of 2023, the leasing volume for warehouse space dropped by 16.3% compared to the previous quarter. Still, this was not something too concerning for landlords because the vacancy rate held steady at 3.8%. And while this is nothing compared to the climbing average national vacancy rate for office space (27% yikes!), it is worth mentioning to understand the full leasing dynamics of industrial space.

Overall vacancies for the industrial space remain low as it continues to be the strongest performing asset in the commercial real estate field.

But compound this slight slowdown in leasing with the fact that hundreds of millions of square feet are about to hit the market by the end of this year. The projected 620.5 million square feet of warehouse space under construction nationwide is set to profoundly impact the commercial real estate landscape.

“The largest pipelines on a percentage of stock basis were found in Phoenix (16.6 percent, 58.8 million square feet), Dallas-Fort Worth (5.9 percent, 52.7 million square feet) and the Inland Empire (5.0 percent, 31.1 million square feet),” according to the Commercial Search.

And this year, 2023, is poised to be a significant turning point, with almost 90% of the ongoing construction projects expected to be completed and available on the market by the end of the year. This influx of new warehouse inventory is providing tenants with an abundance of options to choose from. Because any degree of over-saturation puts tenants in a more favorable position.

But this over-saturation won’t last for long. This is a temporary opportunity for warehouse tenants to pick up on. The market is quickly catching up and absorbing the space because there’s been a slowdown in the construction of warehouse space.

Warehouse Construction Slowdown

Industrial landlords and developers are trying to reign back in their power by shifting the demand balance for properties. So, they are pulling back on new warehouse construction until the industrial market absorbs the space over the next year or so.

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