The U.S. industrial real estate market, a vital component of the logistics and supply chain management sector, recently encountered some unusual fluctuations. In 2023’s third quarter, industrial space vacancies saw a dramatic uptick. According to Cushman & Wakefield, a global commercial real estate agency providing services in Jacksonville, Fla., the vacancy rate for industrial properties rose from 4% in Q2 to 4.7% in Q3; a significant leap. But even more substantial is the comparison to vacancy rates just one year ago, which averaged only 3%. The rising rate of commercial vacancies reflects a distinctive shift from previous years, as rates had been steadily declining. While this transition is noteworthy, it should not be cause for alarm as of yet and may be a byproduct of increased market activity and new construction. Regardless, evolving trends should be monitored to appropriately predict the impact on all segments of the market, particularly logistics and supply chains, for Jacksonville. Many are beginning to wonder how companies that rely on these spaces, like third-party logistics (3PL) providers, are going to adapt. Really? Who’s wondering this? Who are the “many”?
Global changes regarding production, logistics, import and export addendums, etc. have cultivated a new marketplace over these past few years, post-COVID-19. As a result, businesses have become extra cautious about expanding their operations and expenses. Rising interest rates and inflation have contributed to a noticeable increase in the availability of leasing spaces and warehousing. Expanding operations has diminished for many companies, with fear over the stability of our economy. That sentence isn’t right, but I don’t know why. The growth reduction, including fewer new facility openings, is directly affecting the demand for logistics needs and 3PL services – especially if businesses are utilizing their existing warehouse spaces more efficiently. That being said, businesses that are looking to lease industrial space in the current market may have more options and negotiating power than previously offered, potentially offsetting some of the dissonance.
Moreover, the slowdown in commercial leasing activity is posing a challenge for logistics service providers overall. The lull in demand may require providers to adjust their pricing strategies or offer additional value-added services to attract and retain clients. Competition among 3PL providers may intensify as more space becomes available and adjustments/accommodations to comply with growing client requests continue to emerge.
It’s crucial for 3PLs to closely monitor and analyze market trends to make informed decisions. Adapting to a changing market may involve diversifying service offerings, expanding into new
geographic areas, or targeting specific industry sectors with higher demand for logistics services. Additionally, building strong relationships with industrial real estate developers and landlords can help 3PLs access prime locations and secure favorable leases.
Despite the uptick in commercial vacancy rates, the industrial market in the United States remains robust. Leasing and sales activities over the quarter indicate growth, with e-commerce and logistics companies driving demand in key markets across the country. This growth can be attributed to the changing dynamics of the logistics industry, as businesses continue to adapt to the ongoing impacts of the COVID-19 pandemic on our global supply chain.
As the United States competes to remain a leader in global trade, it is essential to recognize the importance of a healthy and modern industrial infrastructure. Historically, low interest rates have allowed businesses to invest in their specific supply chains, fueling the construction boom witnessed in recent years. With that in mind, it is likely that the industrial market will shift towards a more balanced state and eventually tilt the scales back towards occupancy accrual once more.
All in all, while industrial space vacancy rates in the U.S. market are currently at an unusual high, likely due to new construction, the challenges this presents are perpetuating diversification in logistics services that might just represent opportunity in disguise.
Adaptability, agility, and a keen understanding of clients’ evolving needs are paramount for 3PLs to thrive amidst changing market dynamics. With strategic planning and a focus on innovation, 3PLs can overcome challenges and leverage modernization to remain competitive within the industry