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- Retail Sales Are Up, Suggesting Consumer Spending Resilience Despite Ongoing Inflation and Interest Rate Impacts
- E-commerce’s Share of Retail Sales Reached Its Highest Level Since 2020 in Q1 2024
- Average Lease Term Lengths Are Down 12.9% From Peak for Bulk Transactions
- Class A Lease Transaction Sizes Are Down 23% From Peak Across Major Markets
- Effective Rent Growth Slowing Steadily Since Late 2022
CompStak conducted an in-depth analysis of market statistics across eight major U.S. markets, with a special emphasis on the Los Angeles-Orange County-Inland Empire region. Leveraging CompStak’s comprehensive data, we’ve identified a trend of moderation in the industrial leasing sector. Our upcoming blog series will delve into these insights, providing a detailed exploration of the industrial real estate landscape.
Interested in exploring the full report? Find it here.
Retail Sales Are Up, Suggesting Consumer Spending Resilience Despite Ongoing Inflation and Interest Rate Impacts
Total U.S. retail trade grew 0.8% in March from the previous month and was 0.5% higher than the prior September 2023 peak. Also in March, year-over-year retail sales grew 3.6%, the category’s highest growth rate since December 2023. There was just one month of negative year-over-year growth since the April 2021 peak, suggesting that consumer spending remains resilient despite continued uncertainty over the timing of future interest rate cuts and the impact of higher-than-target inflation.
E-commerce’s Share of Retail Sales Reached Its Highest Level Since 2020 in Q1 2024
E-commerce peaked as a share of total retail sales in Q2 2020 but remains elevated and a strong driver of industrial demand even as some tenants and major industrial occupiers slow their growth. Notably, it has risen for the past eight consecutive quarters and is now at its highest level since the second quarter of 2020, after rising 80 basis points year over year. This steady growth indicates that e-commerce has not peaked and remains a significant tailwind for industrial demand.
Average Lease Term Lengths Are Down 12.9% From Peak for Bulk Transactions
The softening in the industrial market is evident in lease term length trends, which are down substantially from recent peak levels reached in 2022 for both bulk transactions of 100,000 square feet or more and smaller deals of 10,000 to 99,999 square feet on average across eight major U.S. industrial markets. They are down by a greater measure for bulk transactions, having dropped by more than 10 months from peak to the first quarter of 2024 to an average of 73.7 months. This shortening may reflect a desire for greater flexibility as landlords may be agreeing to shorter terms to recapture tenants sooner in a stronger market, while tenants may be seeking shorter terms as they reassess their future space needs.
Class A Lease Transaction Sizes Are Down 23% From Peak Across Major Markets
The average overall industrial lease transaction size has fallen significantly across major markets, largely driven by the drop in size for transactions completed in Class A industrial buildings including prime and new construction assets. While the Q1 2024 monthly average of 175,824 square feet for Class A deals still topped 100,000 square feet, it was down by about 50,000 square feet since the peak reached in January 2023. Notably, while it remains down from that peak, it has been creeping back in recent months, driven in part by an uptick in megadeals of 1 million square feet or more from Amazon in markets like Phoenix, Houston, Philadelphia–Central Pennsylvania, and the Inland Empire.
Effective Rent Growth Slowing Steadily Since Late 2022
On average, effective rents for both bulk and smaller transactions have declined slightly over the past several months, falling 3.7% and 4.3% from their peak as of March 2024. In addition, the year-over-year growth rate in both categories plunged 380 basis points from their peak.
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