Q2 2023 North America Market Report
INDUSTRIAL OVERVIEW: INDUSTRIAL GROWTH ON TRACK FOR LEAST GAIN IN YEARS
In a reversal from the ballooning logistics capacities required during the pandemic, demand for space has slowed across North America. After continuously rebuilding inventories from the fall of 2021 through Q3 last year, many retailers and wholesalers are taking a breather, pausing further inventory accumulation out of caution over the economic outlook. In the U.S., second-quarter net absorption was down 58% year over year, and 2023 is on track to post the weakest annual growth in more than a decade. The vacancy rate was up 30 basis points from the first of the year to settle at 4.7%. The recent slowing has been broad based across most markets, but Los Angeles, the Inland Empire and Las Vegas recorded outsized increases in available space.
OFFICE OVERVIEW: OFFICE DOWNTURN DEEPENS, SUBLEASE SPACE MOUNTS
Tenants in the United States shed a record amount of space in the first half of 2023 and net absorption is on pace for its biggest annual loss ever, exceeding the negative 68 million SF in 2020, the first year of the pandemic. Net absorption nationwide in the second quarter was negative 10.9 million SF, bringing the mid-year total to negative 39.7 million SF, as the internet and social distancing combined to dramatically alter the entrenched regimen of the office worker. While hybrid work has become a fixture in many companies, studies show that fully remote work has declined.
RETAIL OVERVIEW: RETAIL'S LATEST CHALLENGE: SATISFYING PENT-UP DEMAND
Retail property is showing its overall resilience across North America with fundamentals so tight that the sector’s biggest challenge lately is satisfying pent-up demand.
The second quarter was the ninth straight quarter of positive net absorption in the U.S. Leasing activity has been declining lately, however. This year’s 18.2 million SF of net absorption through June is the least since 2020, the first year of the pandemic. Otherwise, most retail landlords have enjoyed steady growth, and the sector’s vacancy rate is at a record low 4.2%. Merchants and landlords say leasing activity is being affected by supply- and demand-side factors. Lack of available supply in desirable locations is holding back growth while concerns over rising costs and uncertain economic outlook for consumption are affecting demand.
MULTIFAMILY OVERVIEW: DEMAND REBOUNDS BUT TENANTS RETAIN UPPER HAND
Healthy demand for apartments in the U.S. rebounded in the second quarter after falling flat last summer. But with supply outpacing net absorption for six straight quarters and a historic volume of apartments under construction the outlook tilts decidedly in the tenant’s favor. There were 184,935 units rented in the first half of 2023, 24% more than last year, with 140,139 units absorbed in the second quarter. The strong quarterly showing puts absorption for 2023 on track to exceed the five-year pre-pandemic annual average by 15%.
