Q1 2024 North America Market Report
INDUSTRIAL OVERVIEW: POLICY AND MARKET PRESSURES SHAPE INDUSTRIAL GROWTH
Interest rate hikes by central banks aiming to tame inflation and tenants battling supply-chain and other issues continue to slow industrial demand across the United States and Canada.
One difference between the two neighbors, though, is consumer behavior on discretionary spending. When Canadians shut their wallets as the Bank of Canada began raising rates in 2022, the buying habits of U.S. households hardly changed. The Commerce Department reported that Americans closed out 2023 with a 2.8% increase in personal consumption spending. Fortunately, the relative overall health of labor markets, household incomes and business margins have most observers expecting only cooling but not contracting economies. But a 12-year low in U.S. home purchases hit the sales of furniture, appliances and building materials. Bed, Bath & Beyond closed 360 locations. HomeGoods, Home Depot and tile maker Daltile closed distribution centers larger than 500,000 SF in Q1. On the plus side, Burlington Coat Factory, TJX Companies, Chuck and Dwight and Nestle USA all have signed leases larger than 700,000 SF this year.
OFFICE OVERVIEW: U.S. CONTRACTION IN ITS FIFTH YEAR; CANADA POSTS GAINS
First-quarter net absorption of office space in the United States was negative 26.8 million SF, as the Covid correction continued into its fifth year. In contrast, office demand in Canada has been modest and overall positive since 2000. Canada’s strong first-quarter 2.3-million-SF expansion fell just short of equaling positive totals in each of the last two years. In both countries, however, office attendance has been stagnant. By most broad measures, workers across in the U.S. and Canada generally are in the office about half as much as pre-Covid.
Despite a strong economy and job growth, cost-cutting has been a theme in recent corporate earnings reports. Underutilized office space has been viewed as an opportunity for savings.
RETAIL OVERVIEW: CONTINUED DEMAND PRODUCES TIGHTEST MARKETS ON RECORD
Prolonged merchant demand for space, fewer store closures and bankruptcies and a limited available supply have combined to produce the tightest retail market on record in the United States and Canada, as vacancies reach all-time lows.
Canada’s first-quarter vacancy rate was 1.6%, which was unchanged from the previous quarter despite reduced consumer discretionary spending. But an appetite for cars, appliances and personal indulgences has kept inventories of big-ticket items low.
MULTIFAMILY OVERVIEW: NORTH AMERICA'S SEPARATE RENTAL ECONOMIES
Rising consumer sentiment and moderating inflation has fueled a timely overall rebound in United States apartment demand. Nevertheless, supply outpaced demand for the ninth straight quarter, but that is set to change. In Canada, meanwhile, an acute housing shortage, which has produced double-digit rent growth, has caused the federal government to eliminate the 5% Goods and Services Tax on new rental units and offer other incentives to stimulate apartment development.
In the U.S., healthy net absorption of 423,409 units in the last five quarters, including Q1, was overwhelmed by 724,942 new apartments added to the supply. During the same period the nationwide vacancy rate has risen from 6.5% to 7.8%.
