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Is IRE on Verge Of Cooling Off?

The industrial real estate market is showing signs of slowing after a period of unprecedented expansion, according to a recent NAIOP Industrial Space Demand Forecast.

The commercial real estate development association says that “amid lower pressure on global supply chains, increasing inventory carrying costs, a cooling economy and a decrease in the rate of ecommerce expansion, retailers and logistics firms have slowed the rate at which they acquired additional industrial space this year.”

It reports that net absorption of industrial space in the first two quarters of 2022 was 151.2 million sq. ft., down sharply from 2021’s record pace but still notably higher than in prior years.

According to NAIOP’s projections, the still-hot industrial market will cool and the net absorption rate will continue to decline until it returns to the pre-pandemic trend.

Total net absorption of industrial space in the second half of 2022 is forecast to be 112.4 million sq. ft., and full-year absorption in 2023 is forecast to be 209.4 million sq. ft.

“On balance, there may be a leveling off in the industrial real estate sector that is a healthy rebalancing of where things should be when viewed through a long-term historical perspective,” said NAIOP President Marc Selvitelli.

“The sector saw unprecedented growth that was accelerated by the pandemic and related supply chain issues. As those two situations unwind, we will see a more natural course of growth.”

Because supply chain congestion eased in the first half of 2022, retailers and logistics firms have shown less interest in leasing or buying industrial space before it is needed, the trend that contributed to higher absorption in 2021, NAIOP observes.

However, the association says demand for new space still has the markets out of equilibrium, a trend likely to continue for at least several quarters.

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