Industrial Real Estate Trends in 2024

Matthew Rand believes that in 2024, it will be more important than ever for industrial real estate firms to provide occupiers with the right spaces in the right locations for their operations. Image courtesy of Link Logistics

Industrial real estate was a top-performing sector in 2023, with demand near record levels. The sector is likely to remain bright, although growth will happen at a slightly slower pace due to several factors, experts agree.

On the heels of two years of unprecedented growth, the industrial sector has reached a more sustainable, normalized trajectory, Link Logistics Managing Director of Research & Analytics Matthew Rand told Commercial Property Executive.

Going forward, the economy could determine the near-term course of the sector to an extent, but we will also see a continuation of secular tailwinds play out, such as the entrenchment of e-commerce and a shift toward regional models that drive greater demand for smaller infill sites.

Fundamentals will cool off

In 2024, industrial developers will continue to face long-term issues such as community resistance to new projects, high construction costs and limited power availability, according to Andrew Mele. Image courtesy of Trammell Crow Co.

According to the latest CommercialEdge report, there were 505 million square feet of industrial space under construction as of November nationwide, accounting for 2.7 percent of existing inventory. But with capital becoming more expensive over the past two years, a slowdown of new construction has settled in, with buyers and sellers also tempering their activity.

Trammell Crow Co. Market Leader Andrew Mele expects future industrial development activity to slow down in 2024. Mele noted that we can already see construction starts subsiding—they are down 64 percent since 2022—due to the high costs of capital, both debt and equity. We will likely see the under-construction pipeline continue to fall through the year, he believes.

Completions were at or near historic highs in 2023—up 33 percent year-over-year through the third quarter, according to CBRE data—due to construction starts that occurred before the interest rate hikes and the cooling of capital markets that began mid-2022. Melinda McLaughlin, head of Global Research at Prologis, noticed that the logistics market is in the middle of a supply-driven “mini-cycle,” which is characterized by a temporary influx of new supply that will be followed by a pullback in deliveries in the second half of 2024.

“This means vacancy will peak at a historically low level in mid-2024, before declining again as a cliff in new supply meets accelerating demand, aided by an improved economic growth outlook,” said McLaughlin.

READ ALSO: What’s Ahead for Industrial? SIOR Conference Report

One of the main short-term challenges for industrial developers and operators will be the availability of capital for new projects. “Despite strong fundamentals, equity investors and lenders will…