Tenant demand for industrial space in the United States and Canada fell sharply in 2024 and rent growth was the weakest in more than a decade.  Several factors were behind the slowdown. Business owners paused expansions in 2023 largely due to lingering supply-chain issues and higher interest rates that reduced home sales and purchases of home improvement materials and appliances. In the U.S., a potential longshoremen strike threatened East Coast shipping and caution continued to hobble growth plans in 2024 pending the general election and its effect on tariffs.

Fourth-quarter net absorption in the U.S. totaled 37 million SF, down 45% from the same period in 2023. For the year, net absorption totaled 113.7 million SF, off 36% from 2023.  As long as net absorption can remain marginally positive, vacancy increases will likely slow in 2025 as the volume of speculative developments completing construction is set to abate. The continued reduction in industrial construction starts that occurred in late 2024 also raises the probability that the U.S. vacancy rate could begin to decline by late 2025 or early 2026.

In the meantime, year-over-year rent growth has slowed to 2.1%, the slowest level since 2012. Thanks to record rent growth during the pandemic, many leases are still renewing at more than 40% higher rates after being marked to market.  However, this is much more easily achieved in the small building segment of the market, where vacancy remains less than 4% and near pre-Covid record lows.  In contrast, the stock of logistics properties 100,000 SF or larger has grown by 20% over the past four years and the vacancy rate among these buildings has surpassed 9%, hitting the highest level since 2012. READ MORE >

The North American office market is approaching an inflection point with an apparent assist from employers revising permissive pandemic workplace policies. Tenant demand in the United States closed 2024 by posting a second straight quarter of growth. Canada’s absorption for the year was the most since 2018.

U.S. net absorption was 3.5 million SF in Q4 and totaled 11.2 million SF for the second half with premium Class A space most in demand. Nearly half the nation’s top 50 office markets have seen positive demand since 2024 Q2, led by New York City. Some secondary and most tertiary markets have also seen resurgent demand. But there are several gateway cities and many secondary markets that continue to lose occupancy to slow job growth and reduced space requirements post-Covid.

Nearly 23 million SF of negative absorption in the first quarter of 2024 brought the cumulative loss since the onset of Covid-19 to 206 million SF. By comparison, absorption losses associated with the Great Recession of 2008-09 totaled about 50 million SF.

A number of companies have increased worker attendance requirements or plan to do so, including Disney, Starbucks, X and Amazon, whose CEO, Andy Jassy, said: “When we look back over the last five years, we believe the advantages of being together in the office are significant.” Even Zoom has called its workers into the office for two days a week. JP Morgan is discussing possibly bringing back its approximately 300,000 employees to the office daily in 2025. READ MORE >

Merchants seeking more location options in the tight North American retail market in 2024 were often disappointed. Vacancy rates remained at or near record lows, and despite a new round of tenant bankruptcies and store closures, the lack of quality space is crimping some tenants’ expansion plans.

Net absorption totaled 23 million SF in 2023 in the U.S., a decline from the last three years of strong tenant growth in which demand exceeded new supply by nearly 60% and rents gained 10.4%.

Canada posted 5.5 million SF of net absorption in 2024, the most since 2022. The healthy tenant expansion came despite a dearth of available space. The vacancy rate has ticked down from 3% in 2017 to a record low 1.4% in 2024.

Additionally, after more than three years of healthy demand, many available spaces skew to the lower end of the quality spectrum. Thus, tenants seeking newer, higher-quality space in affluent locations are finding few available options.  About 6.5 million SF were absorbed in Q4, the retail sector’s 16th straight quarter of positive demand primarily being driven by tenants in the food services, off-price, experiential and healthcare sectors.

U.S. retail property fundamentals remain historically tight in 24Q3, as a lack of new deliveries and steady demand formation have kept the space available for lease at a record low of just 4.7%. Against the backdrop of the scarcity of available retail space, intense competition among tenants vying for prime locations is now playing out across the U.S.  Developers continue to be challenged to make new ground-up retail development deals pencil at today’s costs at current rent levels. This environment should support further rent gains for landlords and allow supply-constrained conditions to persist for the foreseeable future. READ MORE >