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.

Tampa, Jacksonville, Lehigh Valley and Detroit have bucked the national trend by recording tightening availability rates over the past 12 months. Speculative construction in Lehigh Valley and Detroit have gained from the growth of manufacturing tenants and distributors. Jacksonville and Tampa have been direct beneficiaries of diverted Asian imports through the Panama Canal to East Coast and Gulf Coast ports. READ MORE >

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.

The Q1 vacancy rate in the U.S. increased to 13.8% in Q1 from 13.5% at the end of 2023. There was 60.7 million SF of negative net absorption in 2023, the fourth straight year with growth in the red. Since the pandemic struck in Q1 2000, vacant space in the U.S. has increased 275.9 million SF as return-to-office initiatives have failed to gain traction.

Cumulatively, the amount of occupancy lost since 2020 is four times what was recorded during the Great Recession and three times greater than the dot-com bust in 2001. Although down somewhat from the peak in mid-2023, there are 203 million SF available for sublease, over half of which are vacant. Second-hand space is nearly twice the total at the end of 2019. READ MORE >

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.

The U.S. vacancy rate settled at 4.1% at the end of Q1, up slightly from 4% at the close of 2023. Demand for U.S. retail space rose by more than 53 million SF in 2023, the third straight year of growth. Since early 2020, there has been more than 175 million SF of net expansion. At the close of 2023 only 4.8% of retail space was available, the lowest level on record.

Most of the growth in demand for space has been driven by tenants from food-and-beverage, discount, off-price and experiential sectors, which accounted for more than half of all new leasing activity over the past year.  Retail tenants in the food-and-beverage sector accounted for nearly 20% of all leasing activity last year. The bulk of leasing activity is concentrated in spaces of 3,000 SF or less and overwhelmingly driven by growth from quick-service restaurants. Leading tenants Starbucks, Crumbl Cookies, Yum Brands and Restaurant Brands International, which owns Burger King, Tim Hortons, Popeyes and Firehouse Subs, all signed for dozens of new locations over the past year. READ MORE >