- The national industrial construction pipeline increased to 689.4 million square feet, an all-time high, as retailers continued to gobble up warehouse space to store long-delayed inventory, according to a report from New York-based commercial real estate advisory Newmark.
- New construction delivered 97.5 million square feet in the third quarter of 2022, a modest increase from last quarter’s 84.9 million square feet. Absorption remained over 100 million square feet for the sixth consecutive quarter and was 65% above the trailing three-year pre-pandemic quarterly average.
- But while many construction projects still move forward, some developers are pausing speculative projects or selling development sites, while the pace of absorption actually decelerated at the quickest rate since Q3 2021, according to the report.
New construction’s modest jump means supply is poised to accelerate just as demand begins to slow, with a return to pre-pandemic averages expected in another three to four quarters, Newmark said.
That tapering will roll out gradually, as construction timelines remain stretched due to lingering supply chain, material and labor sourcing issues, according to the report.
Total retailer inventories were 21.5% higher than a year ago, the report noted, even as consumer spending slows and shifts from goods to services. Newmark expects inventory pressure to ease for the remainder of 2022 and into next year.
Amid that environment, some developers are pausing speculative projects or waiting to “go vertical” until a lease is signed on a project.
For example, Target recently withdrew plans for a proposed 525,800-square-foot warehouse in the Boston Area. Amazon earlier this summer also decided to hit the brakes on industrial expansion, resulting in at least 21 new project proposals canceled and numerous additional delayed project starts, according to the report.
But increased caution has thus far had a muted effect on development activity.
Construction starts in the industrial sector slowed nearly 2% from the previous quarter, but still remain near all-time highs, according to the report. To contextualize, this current volume is approximately 260% higher than the pre-pandemic three-year annual average.
Each of the 49 industrial markets tracked by Newmark had construction underway in the third quarter of 2022, yet development remains heavily concentrated in a select few markets, namely Dallas, Phoenix, the Inland Empire, Indianapolis and Atlanta. These markets all have 30 million square feet or more in development, according to the report.