The net absorption of industrial real estate – the amount of space occupied minus space vacated over a given period – has slowed from record levels in the wake of the pandemic, but the sector remains strong, according to the most recent NAIOP Industrial Space Demand Forecast.
Total U.S. industrial net absorption in the first half of 2024 totaled 67.1 million square feet, down substantially from a historic peak in absorption in 2021, when it totaled 749.3 million square feet for the year, according to historical data provided by CoStar. However, despite increased uncertainty about the economic outlook for the second half of 2024, the current NAIOP Industrial Space Demand Forecast indicates that nationwide demand for industrial real estate will continue to grow. The forecast projects 114 million square feet of net absorption in the second half of 2024 and that full-year absorption in 2025 will total 249 million square feet.
Several factors suggest demand for industrial real estate will remain healthy:
- With a consensus that the Federal Reserve will cut interest rates starting in September, the potential for increased industrial leasing activity is substantial, assuming core consumer demand remains intact.
- Strong retail sales figures in July (up 1% from the previous month) suggest consumers will continue supporting demand for industrial space. Although the sector no longer benefits from the robust inventory growth experienced in 2021 and 2022, inventories are not shrinking either; combined retailer and wholesaler inventories remain unchanged from a year ago after accounting for producer price inflation.
- The ratio of e-commerce sales to total retail sales has grown over the last year (from 14.9% to 15.9%) and is approaching a high previously reached in the second quarter of 2020 (16.4%). E-commerce sales require more industrial real estate to service than sales in brick-and-mortar stores.
- The U.S. economy appears strong with second-quarter GDP estimated to have grown at an annualized rate of 2.8%.
“The nation’s economy appears robust, the retail sector is recovering and as a result we remain bullish that that the industrial sector will continue to grow,” said NAIOP President and CEO Marc Selvitelli. “While the post-pandemic rate of expansion may be once in a lifetime, industrial will be a valuable, vibrant and expanding sector of commercial real estate for some time.”
The forecast is funded by the NAIOP Research Foundation; the authors are Hany Guirguis, Ph.D., Manhattan College and Joshua Harris, Ph.D., CRE, Fordham University. The forecast is derived from historical real estate market data provided by CoStar and an analysis of leading economic indicators. Due to a change in data sources, the current forecast is not directly comparable to past forecasts. The model forecasts demand for industrial space at the national level by utilizing variables that comprise the entire supply chain and lead the demand for space thereby capturing most changes in demand.
Download the full NAIOP Industrial Space Forecast here.
