What the Industrial Real Estate Market "Normalizing" Truly Means
While the industrial market is moderating, this is a result of a continued boom over the past 3+ years. Overall net asking rates have risen dramatically in this timeframe, and they continue to rise across the manufacturing, warehousing, and distribution sectors. Overall, more opportunities are presenting themselves to the market, and there is additional leverage to be utilized for tenants’ negotiations.
This may be the case, but in the above article, it highlights:
The overall vacancy rate has increased 90 basis points Y-o-Y to around 4.5%, but it still sits well below historical levels. Overall vacancy rates hover around 7- 8% in healthy market conditions; it is still a landlord’s market. Additionally, the rise in interest rates has slowed down speculative development in 2023; there is going to be less space coming to the market in 2024, keeping the vacancy rates low.
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The increase in available space largely comes due to an increase in sublease space, and speculative developments being delivered to the market. A much smaller percentage of new construction buildings are being pre-leased (sub-10% currently). While there are more opportunities today in comparison to the past few months, landlords remain to have a competitive advantage in this market.
To share an example and highlight the current market conditions, I am representing a tenant for their lease renewal. Their landlord submitted an initial Proposal with a 34% increase to their rental rate Y-o-Y – as they had signed their current lease prior to the “Industrial Boom,” in 2019. Given commercial real estate is our focus day-to-day, we anticipated this jump and assisted with expectations.
By reviewing comparable properties, we were able to achieve a reduction from what the landlord was looking to achieve for their rental rate. By only working exclusively with business owners, my goal is to educate entrepreneurs and decrease the expenses to the bottom line of their income statement.
I highly recommend working with an industrial real estate expert for any real estate needs or initiatives, whether it be for a lease renewal, expansion/re-location, purchase/sale, etc. – even if it is with Bespoke Commercial Real Estate or another firm.