In our latest quarterly report for south eastern Wisconsin, we provide an in-depth look at the shifting trends in commercial real estate, with a particular focus on the industrial sector. We deliver critical market data and insights, equipping our clients with the knowledge they need to navigate current challenges and seize opportunities in this dynamic market. Read on for an in depth analysis of the report.
Commercial Real Estate has been a wild ride as the market adjusts to the increase in interest rates from 2022 and 2023. Throughout this ride, the Industrial market has been considered the most stable. However, the Industrial market has now posted two consecutive quarters of an increasing vacancy rate.
Normally, vacancy rates increase due to companies reducing space needs. When the demand is decreased, this typically leads to a lower lease rate; however, this is not the case in 2024. This year, the lease rate is increasing at the same time the vacancy rate is increasing. This is occurring because developers rushed to start speculative projects when the interest rates were low and have stopped these projects now that the interest rates have increased.
A wave of new space hit the market in the end of 2023 and beginning of 2024, which caused the increase in vacancy rates. because of this, new construction is causing the supply of the Industrial space to grow rather than decrease the demand for space. Now that the speculative projects are almost all completed and on the market, companies have been expanding into these new spaces. This is represented in the large increase in the lease absorption rate- which compares how much space companies occupy to the vacant or new space on the market. Positive absorption shows that companies are filling the vacant space, which will drive the vacancy rate down.
Looking Ahead: The Future of Industrial Real Estate
As mentioned above, speculative construction is nearly non-existent. Even if the market growth slows down, the lack of supply will add pressure on demand which will lead to increasing lease rates, pricing pressure, and a prolonged period of low vacancy rates. Companies should begin their process early and fully explore all options given the market forecast and challenges to find new and existing space for tenants or buyers of Industrial Real Estate.