As seen in GlobeSt.
U.S. industrial demand is outpacing new supply as a surge in large leases and manufacturing activity gives investors a stronger case for the sector’s recovery. Third-quarter net absorption reached its highest level since late 2022, while vacancy declined and CBRE projected annual investment volume would rise 15% to $130.7 billion.
The gains were substantial but not uniform. Leases for at least 700,000 square feet nearly doubled and manufacturing leasing jumped 69% year over year. Older properties continued to face vacancy challenges, however, and an expanding construction pipeline could test the balance between supply and demand.
Large Leases Drive the Rebound
Net absorption totaled 104.6 million square feet in the third quarter, the strongest showing since the fourth quarter of 2022 and well above the 10-year quarterly average of 82.9 million square feet, according to CBRE’s third-quarter U.S. Industrial & Logistics Market Report.
That brought year-to-date absorption to 237.8 million square feet, more than double the 97.7 million square feet recorded during the same period last year. Demand exceeded new supply for the second consecutive quarter.
Also, leasing activity accelerated, rising 27.1% year-over-year to 276.8 million square feet in the quarter. Through the first nine months, leasing totaled 842.3 million square feet, an increase of approximately 18%.
Third-party logistics providers, manufacturers and data center-related occupiers led the increase in leases of at least 700,000 square feet. Manufacturing accounted for approximately 14% of total leasing activity.
The improvement was not limited to the largest facilities. Leasing across smaller size categories increased by an average of 9.7%, extending the gains beyond big-box transactions.
Falling Vacancy Masks Property-Level Differences
Stronger demand and fewer deliveries helped push the national vacancy rate down 20 basis points year-over-year to 6.4%. Availability fell 30 basis points to 8.9%.
Those national figures, however, did not reflect every market or building. Some markets were still absorbing recently completed speculative developments, while vacancies in older properties remained a challenge.
At the same time, limited availability of first-generation space in some markets and increased renewal incentives supported existing facilities. Buildings completed between 2000 and 2019 recorded 13.9 million square feet of positive net absorption during the quarter.
For investors, the distinction matters: stronger overall demand has not eliminated differences in performance across building vintages.
Deliveries Slow as the Pipeline Expands
Construction deliveries totaled 79.4 million square feet during the quarter, bringing year-to-date completions to 182.7 million square feet. That was 17% below the comparable period last year, helping demand move ahead of new supply.
The construction pipeline nevertheless grew. Space under construction increased 9.3% year-over-year to 278 million square feet, leaving additional supply on the horizon even as current deliveries slowed.
Dallas-Fort Worth illustrates both sides of that equation. The market led the country in year-to-date net absorption at 23.6 million square feet, but it also had the largest construction pipeline, totaling 34.4 million square feet.
Houston ranked second in year-to-date absorption with 18.1 million square feet, followed by Atlanta with 13.6 million. Phoenix and Houston had the next-largest construction pipelines after Dallas-Fort Worth.
Investment Activity Gains Momentum
Investment activity strengthened alongside occupier demand. Based on activity through the first three quarters, CBRE projected annual industrial investment volume would reach $130.7 billion, up 15%.
The market’s stronger absorption, broader leasing gains and declining vacancy offer investors evidence of improving conditions. The remaining vacancy challenges in older buildings and the growing construction pipeline also make clear why property selection and local supply conditions remain important to evaluating that recovery.
