News / Rising number of empty US warehouses no harbinger of falling rates

The vacancy rate in US warehousing climbed to its highest level in over a decade in the second quarter, a new report by commercial real estate services firm Cushman & Wakefield shows – but cargo owners should not expect pricing to sink.

The vacancy rate ascended from 6.9% in Q1 to 7.1%, up 6.1% on 12 months earlier, and is the first time since 2014 that vacancies reached this level.

Vacancies have risen over the past three years as a result of cargo owners’ desire to reduce inventory levels, and by a surge in new warehousing in response to the shortages seen earlier.

This led to predictions of new supply continuing to outpace net absorption, as many firms sought to sub-lease excess capacity.

However, the pace of construction has slowed markedly. In the second quarter, 72m sq ft of new warehouse space came onstream, 45% less than in Q2 24.

Developers have stepped on the brakes. Given the uncertainty that has enveloped global markets this year, firms are reluctant to lease new space, given typical lease lengths of three to five years, one Texas-based warehouse developer noted, adding that he recently decided to postpone a planned project.

Tariffs have been widely cited as one driver of this slowdown.

While they triggered a surge in front-loading, firms are now bracing for the ensuing drop in traffic. The US government’s move to withdraw de minimis exemption from e-commerce imports from China has been mentioned as an additional factor.

This view is not universal, though. Logistics real estate giant Prologis recently argued in a research paper that trade policies had a limited impact on commercial real estate demand, and cited “the concentration of facilities in consumer-oriented markets, which developed to primarily serve domestic consumption and regional distribution, not global trade”.

The paper states that “75% of logistics real estate demand is tied to regional distribution and local consumption”.

Moreover, Chinese e-commerce giants like Temu have already moved to cover the US market from facilities based in North America, gobbling up warehousing capacity.

“Uncertainty, not tariffs themselves, is slowing leasing activity and prompting interest in shorter, more flexible terms,” wrote the Prologis analysts.

OEC Group sales manager Joseph Firrincieli believes the front-loading surge did not significantly alter the warehouse availability rate.

“Most due to the tariffs ended up going into bonded warehouses, so average warehouses used by everyday importers are not necessarily filled to capacity,” he explained.

Despite the historically high level of availability, Cushman & Wakefield does not see a slump in warehousing rates, nor does it envisage much momentum to escalate availability further. Pointing to little change in net absorption from the first quarter and a performance that exceeded expectations, it described the sector as showing “continued resilience”.

“While absorption is still below historical norms, second-quarter leasing activity and the strength of newer product show that the industrial sector is adapting to shifting market forces,” said Jason Price, the firm’s senior director, Americas, head of logistics & industrial research.

Average asking rents actually rose 0.9% from the first quarter, which brought them up 2.6% year on year, although the US north-east and west showed declines of 1.5% and 1.9% respectively, Cushman & Wakefield’s report shows.

But its outlook points to a stronger market ahead.

“Market fundamentals are expected to strengthen, with demand gradually improving and supply falling rapidly. For tenants, the next six to 12 months may present the best opportunity to secure favourable leases,” advised Jason Tolliver, president logistics & industrial Americas.

In this light the slowdown in new warehousing projects points less to a gloomy outlook than a decision by providers to take advantage of elevated pricing levels.

“While total product under construction dipped only slightly quarter on quarter, the speculative share declined from 66% to 62.3%, the lowest level since Q2 20,” Cushman & Wakefield’s report points out.