Industrial demand across the United States dramatically improved in the third quarter but growth remained flat in Canada with net absorption gains for warehouse-and-distribution properties falling from record highs a year ago.  There were 52.8 million SF of positive net absorption in the U.S. in the third quarter, a 76% jump from the same period a year ago and more than double the 23.9 million SF of growth in the first half.

Overall real retail goods spending, which has been driving the new leasing, has risen gradually since early 2023 as inflation subsides. According to the latest data, inflation-adjusted spending rose 5.3% over the prior year in July, the fifth consecutive month of growth greater than 5%.  The pickup was led by sales at non-store retailers and general merchandise stores.   

There are other signs that a steady recovery in tenant demand is underway. Declines in warehousing jobs, which persisted throughout 2023, have leveled off in recent months. Monthly U.S. imports, which also declined last year, have been rising at double-digit year-over-year rates since February. These gains are accommodated by larger volumes of goods flowing through the U.S. distribution network.

The strong tenant demand was well timed.  A surge in new development since 2022 represents the fastest pace of supply growth in more than three decades. Inventory grew by 2.2% in 2022 and 2.9% in 2023. The fourth quarter’s 200 million SF of added inventory was a quarterly record. The volume of completions will remain elevated through 2024 or early 2025 when deliveries fall off as increased interest rates slowed groundbreakings to a 10-year low. READ MORE >

Office demand in the United States turned positive in the third quarter, ending a streak of nine straight quarters of negative net absorption. While growth remained weak, the uptick is due to increases in owner occupancy and medical office users along with fewer large move-outs. Canadian tenant demand also was positive.  Third-quarter net growth in the U.S. totaled 7.6 million SF but year-to-date net absorption remains 20.8 million SF in the red.

Sources tracking U.S. office usage indicate that average office attendance is roughly at 70% of its 2019 level and is trending about 5-10 percentage points more than a year ago. While attendance clearly is rising to some degree, year-over-year job growth in office-using sectors has stalled, rising at less than 1% since mid-2023.

New leasing volume has hovered around 10% less than the average from 2015-2019. Much of the decline has been driven by average lease sizes that are some 15-20% less than the 2015-2019 average.

Currently 193 million SF is available for sublease, more than half of which lies vacant. This is down meaningfully since mid-2023 when it was more than twice what it was at the end of 2019. Moreover, the surge in sublease inventory, which still is nearly double pre-Covid levels, has likely brought forward some of the expected impact connected with future lease expirations. READ MORE >

North American retail property markets scarcely couldn’t be healthier. U.S. retail real estate heads into the second half of 2024 in one of its tightest fundamental positions on record thanks to steadily rising demand, a reduction in tenant bankruptcies and store closures and limited new supply. Meanwhile, Canadian retailer profitability, strong merchant demand and operating fundamentals are holding steady.

Tenant demand for U.S. retail space totaled 6.6 million SF in the third quarter. The positive net absorption is driven by expansion in numerous sectors with the most significant gains from tenants in the food and beverage, discount, off-price, and experiential sectors. These accounted for over half of all new leasing activity over the past year.

Only 4.7% of retail space is currently available for lease. Retail availabilities have been hovering around historic lows since the end of 2022 and are now more than 200 basis points less than the historical average of 6.8%. Availabilities have been contracting across nearly every retail subtype over the past year, with only the freestanding segment seeing availability rise during that time.

While demand for space continues to rise, new retail development activity remains minimal. Net deliveries totaled just 33.7 million SF over the past 12 months, which is less than half of the prior 10-year average. READ MORE >