Healthy speculative new supply coming online coupled with the cooling of absorption pushed vacancy upwards by 30 bps in the first quarter to 7% - on par with pre-pandemic long-term averages, according to the latest research from Cushman & Wakefield.
Similarly to the first quarter of 2024, overall net absorption started off the year with a modest 23.1 msf. However, warehouse and logistics facilities saw 30 msf of quarterly net growth, 10% higher than the Q4 2024 total and up 15% when compared to one year ago.
“Modern logistics facilities continue to drive activity in more tempered market conditions. The market is recalibrating – balancing a wave of new supply with modest demand,” said Jason Price, senior director, Americas Head of Logistics & Industrial Research, in a statement.
Despite lingering uncertainties in the market and economy, there were 139.7 msf of new leases transacted in the first quarter of the year, down just 4.2% compared to Q4 2024. The quarterly total was 10% higher than the 10-year pre-pandemic quarterly average of 126.9 msf.
There were 38 markets that saw 1 msf + of new deal volume in Q1, up from 37 the previous quarter. Deals from 100,000 to 300,000 sf continued to drive demand, accounting for over 35% of the quarterly total, consistent with historical trends. Flight to quality by warehouse tenants remained healthy in the first quarter as 60% of the square footage leased (leases 100,000 sf+) during the quarter were concentrated in logistics facilities built since 2020.
There is currently 270.8 msf of industrial product under development, a 33% annual decline. Warehouse and logistics space accounts for 83.4% of that total, with the South region continuing to account for the bulk of developments. While the pipeline has continued to thin out notably in the West and Midwest regions, development activity was steady in the Northeast and ticked higher in the South since the close of 2024.
“For the first time since mid-2021, the U.S. industrial average asking rental rate have finally flattened out. The rate remained steady at $10.11 per square foot in Q1 as more pockets of rental rate softness emerged,” said Price.
There were 33 markets that registered annual rental rate declines in Q1, up from 25 at the close of last year. On a quarterly basis, the Northeast and West regions both yielded decreases of 2% while the Midwest and South saw modest 0.8% upticks due mainly to additional speculative product coming to market, priced at a premium over market averages. Despite recent downward pressure across many areas, 27% of the markets posted annual gains of 5% or higher, six of which exceeded 10% for year-over-year asking rent growth.
