The US warehouse market maintained its strength throughout 2022, although signs of a slowdown became evident towards the end of the year. According to a recent report from Cushman & Wakefield, the absorption of industrial space remained high, resulting in the second-highest total net absorption on record at 477.3 million square feet for the year. This figure was just slightly below the 2021 record of 561.4 million square feet.
However, the fourth quarter of 2022 saw a decrease in demand due to economic challenges and persistently tight market conditions. During this period, the total net absorption was 107.3 million square feet, representing a 9.4% decline from the third quarter. Nonetheless, this marked the ninth consecutive quarter in which net absorption exceeded 100 million square feet, indicating continued strong demand for warehouse space as we enter 2023.
Regionally, the Southern United States absorbed almost half of the square footage during the fourth quarter, even though it accounts for only one-third of the nation’s inventory. Among the 81 markets tracked by Cushman & Wakefield, 19 recorded more than 2.0 million square feet of net absorption in the fourth quarter, with nine exceeding 1.0 million square feet.
For the third consecutive year, the US industrial market signed more than 700 million square feet of new leasing volume, reaching 757 million square feet in 2022. While this was the second-best year in history, it fell short of the 923 million square feet leased in 2021. Although e-commerce transactions decreased compared to 2020 and 2021, other industries, including retailers, wholesalers, third-party logistics (3PLs), and manufacturing companies, contributed to healthy leasing activity. However, tenant demand started to decline in the second half of 2022 due to economic uncertainty and reduced consumer spending on goods. In the fourth quarter, gross industrial leasing declined by 28% compared to the previous quarter and by 37% year-over-year.
Rental rates for industrial space saw significant increases in 2022 but have recently shown signs of moderation. In the fourth quarter, the average industrial asking rental rate increased by only 1.0% quarter-over-quarter to $8.81 per square foot, representing an 18.6% year-over-year growth, the highest on record. Within warehouse and distribution facilities, which are a primary driver of the industrial market, asking rents increased by 21.6% annually and only 0.6% quarter-over-quarter. Several markets recorded double-digit quarterly increases, with 24 markets reporting year-over-year growth rates of 20% or higher.
Cities such as Charleston, Inland Empire, Phoenix, and Miami experienced annual rental rate growth of 40% or more. Coastal and port-proximate markets, particularly in California and New York/New Jersey, continued to command premium pricing.
In conclusion, Cushman & Wakefield anticipates that supply will continue to outpace demand, as the development pipeline remains robust, with most developments expected to be completed in 2023. However, they caution that speculative construction may lead to overbuilding in some markets in the near term, particularly considering the challenging economic climate and potential interest rate hikes by the Federal Reserve, which could slow down construction starts.
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