Activity varied as fundamentals recalibrate

Industrial absorption across the globe was varied during the second quarter as volumes rose in EMEA and Asia Pacific following a slow start to the year, but stalled in North America. Vacancy rates across all three regions remain elevated, largely due to record-high deliveries over the previous 12 months. Rental growth is still positive but is beginning to plateau given steadily increasing supply and evolving market dynamics.

Occupiers are continuing to exercise caution when making leasing decisions. U.S. industrial absorption during Q2 was level with the previous quarter, bringing the year-to-date total to 54% below H1 2023. However, European leasing markets showed signs of slowly emerging from their lull during the second quarter, reflected in leasing volumes increasing by 8% over the quarter and by 20% year-over-year across the five core markets. In Asia Pacific, quarterly net absorption rebounded, rising by 20% from a very slow start to the year. At 2.9 million square meters, Q2 absorption was on par with the five-year quarterly average, although it was still 33% below record 2023 levels.

Future trends: Growing demand for state-of-the-art facilities

Short-term: Elevated vacancy and slowing asking rent growth are likely to contribute to an uptick in leasing activity in some markets as occupiers capitalize on market conditions. 3PL, manufacturing, and e-commerce users will continue to account for the greatest share of leasing through the rest of 2024 due to the increasing demand for efficient supply chain management. These industries have already experienced significant growth in recent years and, while their activity has eased over the last 12 months, they are expected to continue to expand as consumer habits evolve and technology advancements enhance their operations. Given the prevailing challenges in underwriting new construction projects across the globe, as uncertain economic conditions and higher construction and financing costs persist, the development pipeline is forecast to remain flat through the rest of the year with new completions below the record levels seen in 2023.

Long-term: The share of online retail sales is again on an upward trajectory in many major markets following a post-pandemic pullback, and e-commerce is likely to continue to be a primary driver for the long-term success of the industrial real estate sector. This is particularly true for last-mile delivery as companies seek to be closer to their customers to ensure efficient delivery of goods. Advances in technology and automation are also driving a flight to quality as industrial users increasingly seek state-of-the-art facilities that can accommodate advanced machinery and equipment. This will lead to a growing demand for modern, flexible and technologically advanced industrial spaces that can support automated processes.