Warehouse leasing forecast to fall as much as 15% in 2023

CBRE says vacancies will rise slightly, with net absorption staying positive for 13th consecutive year

drone view of warehouse

CBRE projects a 10% to 15% slowdown in logistics warehouse leasing in 2023. (Photo: Jim Allen/FreightWaves)

U.S. industrial and logistics leasing activity will decline by 10% to 15% in 2023, though for the 13th consecutive year more industrial square footage will be absorbed than will be vacated, real estate services firm CBRE Group Inc. said Thursday.

Industrial vacancy rates, already at historic lows, will increase just slightly next year, CBRE said.

Nationwide vacancy rates currently sit between 3% and 4% and in several top-tier markets are well below those levels. CBRE (NYSE: CBRE) classifies industrial real estate as being both manufacturing and logistics facilities, though logistics warehouses make up the lion’s share. 

The decline in industrial leasing activity will be accompanied by a slowing in construction, as well as declines in asset values and investment volume, CBRE said. One piece of positive news is that construction costs are expected to rise by 5.4% after two consecutive years of double-digit increases, according to the forecast.


The rapid rise in interest rates throughout 2022 will increase “capitalization” rates — a measure of a property’s value in proportion to its projected cash flow — by 25 to 50 basis points next year, CBRE said. As increases in capitalization rates translate into lower returns on investment, asset values across all real estate classes will drop by 5% to 7% next year.

Debt financing will still be accessible in 2023 for strong properties and high-credit borrowers, CBRE said. However, it will be increasingly difficult in general to obtain financing. Institutional investors who’ve played a major role in the 12-year bull market for logistics warehousing have backed away from deals as higher borrowing costs have compressed potential returns.

Demand among e-commerce companies for warehousing space will remain relatively solid next year, CBRE said. That resilience will keep net absorption rates, in which more space is absorbed than vacated, in positive territory in 2023.

The CBRE projections square somewhat with those made last week by logistics warehousing giant Prologis Inc. (NYSE: PLD). In its 2023 forecast, the world’s largest owner, developer and operator of warehouses and distribution centers said that warehouse development will hit a seven-year low as development starts drop 60% year over year. Rent growth will exceed 10% next year due to a relative scarcity of supply, the company said. 


Demand from e-commerce customers, however, has begun to accelerate after weakness in the first half of the year and will notch the second best year ever in 2023 after 2021, Prologis said.

Not every e-commerce company is in full-fledged expansion mode. Throughout 2022, Amazon.com Inc. (NASDAQ: AMZN), the world’s largest e-tailer, has struggled with massive warehouse overcapacity and slowing demand from the frenetic pace of 2020 and 2021. In response, Amazon said in May it planned to sublet 30 million square feet of warehouse space. It  has closed facilities and delayed or canceled pending projects totalling about 24 million square feet. According to projections at the start of 2022, Amazon would have 319 million square feet of U.S. warehouse space by the end of 2023.

In Chicago, which vies with Southern California as the nation’s largest logistics warehouse market, Amazon closed just two transactions totaling 2 million square feet during the first half of 2022, according to a report published Wednesday by real estate services giant Colliers International Group Inc. (NASDAQ: CIGI). By contrast, Amazon signed nine leases in 2021 totaling 4.9 million square feet and 20 leases in 2020 totaling 15.9 million square feet. 

Amazon contributed 10% of the Chicago market’s net absorption over the first three quarters of 2022. In 2020, it contributed 58.3% of the market’s net absorption.

According to data from logistics consultancy MWPVL International, which closely tracks Amazon’s logistics real estate activity, Amazon has closed, delayed or canceled six projects in the Chicago area since July 2021. Five of those projects came in 2022. Space in one facility, a delivery station, has been subleased, according to MWPVL data.

However, Amazon’s retrenching in Chicago must be put in perspective. According to Colliers data, Amazon has purchased or leased 33.1 million square feet in the vast market since 2013. About 524,370 square feet, equal to just 1.6% of Amazon’s capacity in the market, is currently available for sublease.

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