TAKEAWAYS
Industrial Real Estate Keeps the Pace…for Now
U.S. industrial leasing activity will decline in 2023, but demand will keep pace with supply for the 13th consecutive year of positive net absorption, predicts CBRE in its U.S. Real Estate Market Outlook 2023 report. Vacancy rates that remain below the 10-year average, however, will lead to double-digit rent growth, nds the report. As of Q3 2022, a record 661 million square feet of industrial space was under construction—nearly double the amount since 2020. Many of these projects will be completed in 2023 and increase the U.S. industrial vacancy rate by 30 to 60 basis points. E-commerce growth, supply chain transformation, and location optimization will continue to drive demand for industrial space in 2023. Construction nancing challenges and economic uncertainty, however, may lead developers to take a wait-and-see approach to future construction. CBRE expects groundbreakings to decline by more than 50% in early 2023. The reduction in construction starts will drop completions to around 250 million square feet in 2024, leading to a shortage of rst-generation space. In 2023, third-party logistics providers will drive leasing demand. As many companies increase outsourcing, 3PLs’ leasing market share will reach 40% by midyear 2023, even though overall leasing activity is expected to decline by 10% to 15%. This activity will keep vacancy rates low and create rental rate growth of approximately 15%. Markets with an excess of construction deliveries, however, may have to compete by offering increased concessions, such as free rent and higher tenant improvement allowances.
POLISH UP THAT CRYSTAL BALL Making informed decisions that impact all aspects of the supply chain requires access to quality, actionable information. While it’s not possible to accurately predict the future, BlueGrace Logistics’ Logistics Confidence Index (LCI) examines expected revenue growth for upcoming quarters and how shippers can adjust based on those expectations. The LCI shipper survey measures expected industry expansion or contraction based on revenue forecasts, inventory levels, and order volumes. Respondents were asked to reply positive, neutral, or negative when asked the following questions: What is your expected revenue growth for the next quarter? Will this growth/shrinkage impact your inventory levels and if so, by how much? How do you anticipate this growth/shrinkage will impact your orders? Respondents were bearish on revenue growth quarter-over-quarter. Results from Q4 2022 show just 17% expecting negative revenue growth in Q1 2023. Concerns centered on economic tradewinds, however, led nearly 25% of respondents to enter the new year with a neutral outlook. This also is reflected in the responses concerning inventory levels and order impact, where the majority outlook was neutral for both questions, with negative outlooks losing steam quarter-over- quarter. Shippers seem to be headed into 2023 with cautious optimism.
3PL LEASING MARKET SHARE OUTLOOK
2.9%
3.0%
5.0%
5.3%
33.9%
5.9%
40%
Q3 2022 Forecast
Q3 2022
7.6%
60%
7.6%
28.9%
3PL Other
3PL
General Retail & Wholesale
Food & Beverage
Manufacturing
E-Commerce
Building Materials & Construction Automobiles, Tires & Parts
Medical
Undisclosed
Source: CBRE
38 Inbound Logistics • January 2023
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