Softening demand and a much-awaited delivery of speculative warehouse and industrial facilities mark 2023 as a year of recovery and correction. Traditional supply and demand balances are now returning to more traditional pre-pandemic levels.
Shippers and many retailers faced extreme volatility over the last three years leading to strain across the supply chain. In turn, the investment community accelerated its investment in the industrial sector creating a significant windfall for owners along with upward pricing pressure. In many markets in North America, rents have grown as much as 30% year over year.
As we look at demand trends, retailers and e-commerce operations have now stabilized their inventory to sales ratios after huge swings. Inventories have fallen from their 2020 peaks which, in turn, reduced warehouse demand across all markets. With near shoring, Mexico sourcing and electric vehicle production growth, demand from the automotive and food sectors now makes up almost 30% of activity, creating a healthy, balanced landscape.
On the supply side, deliveries have now exceeded demand twofold, leading to vacancy rates returning to pre-pandemic levels. It should be noted, however, that the increase in interest rates and financing costs have effectively shut down new speculative deliveries. Should demand spike up in 2024, there may be a return to constrained supply in late 2024 or early 2025.
Looking forward to 2024, e-commerce growth, manufacturing expansion and supply chain resiliency will continue to drive steady industrial growth across North America. After a three-year imbalance of inventories and vacancies, the future looks to be strong and steady, especially in markets with pronounced population growth.