2023 Buzzwords: Interest Rate, Inflation, Credit Conditions, Construction Pricing, Uncertainty, Downward Pressure, and a new one that is emerging – slowdown…
The next 12 months will be different from the chaos the industrial market has seen over the past two years. A few takeaways from the Agracel, Inc. Development Team:
Vacancies are inching up [from 3.9% in Q2 2022 to 4.8% Q2 2023] as new industrial buildings come online but it is still well below the average of 7.3% over the past 20 years. More space is available now and time will tell if the demand remains.
Net absorption [number of new buildings that are being used or occupied] for Q2 2023 was less than half the levels recorded in 2021 and 2022. Also, it is 30% below typical Q2 levels recorded prior to the pandemic.
Completion of new industrial buildings that were started in the summer of 2022 are getting ready to deliver and it is going to grow the SF of industrial buildings in the US for 2023 by more than 3% – the fastest increase in the past 30 years.
“The writing on the wall”
New construction starts are starting to decline – down 50% from Q2 2022 to Q2 2023. Deliveries will see a decline every quarter from now until the spring of 2024. Supply and demand will battle it out over the next few years. Maybe a future post on price elasticity and the laws of supply & demand…
The bombers are down. Industrial buildings 500,000 SF and larger are seeing the highest risk of oversupply. Sure, a 1M SF building is more efficient for an industrial developer to build than a 100,000 SF building, but the stakes are much higher. As we stated in previous articles, port-centric and other select markets will do just fine absorbing these larger buildings – only time will tell for the other markets.
TLDR: More empty industrial buildings are becoming available and the rate at which they are being filled has slowed down – a lot. Also, the rate at which new industrial buildings are being built will decline shortly. Supply and demand will impact pricing soon. With interest rates rising and property values declining, some new delivery values will dip below replacement costs. All signs of a slowdown are becoming clearer.
Jason Vaughn is Director of Development, Southeast Region for Agracel.
About Agracel – Agracel, Inc. is an industrial development company headquartered in Effingham, Illinois with offices in Birmingham, Alabama; Nashville, Tennessee; Columbus, Ohio; and Greenville, South Carolina. Over the past 37 years, the company has focused exclusively on partnering with non-urban communities to facilitate job creation and to be a value-added development partner. Agracel is a long-term investor that is interested in lasting partnerships with both the tenant and the communities in which they work. The company provides an array of development services such as site selection, build-to-suit turnkey, build-to-suit leasebacks, and acquisition leasebacks. Today, Team Agracel has developed over 23 million square feet of industrial space in 22 states.