Skip to main content
Login to access your documents and resources.
Welcome to Nuveen
Select your preferred site so we can tailor your experience.
Select Region...
  • Americas
  • Asia Pacific
  • Europe, Middle East, Africa
location select
Select Location...
  • Canada
  • Latin America
  • United States
  • Australia
  • Hong Kong
  • Japan
  • Mainland China
  • Malaysia
  • New Zealand
  • Singapore
  • South Korea
  • Taiwan
  • Thailand
  • Other
  • Austria
  • Belgium
  • Denmark
  • Finland
  • France
  • Germany
  • Ireland
  • Italy
  • Luxembourg
  • Middle East
  • Netherlands
  • Norway
  • Spain
  • Sweden
  • Switzerland
  • United Kingdom
  • Other
location select
Institutional Investor
  • Institutional Investor
  • Individual Investor
  • Financial Professional
  • Global Cities REIT (GCREIT)
  • Green Capital
  • Private Capital Income Fund (PCAP)
location select

Is the boom over for industrial properties?

A row of industrial doors

The industrial real estate sector has experienced unprecedented demand over the past two years, but that pace is beginning to decline. E-Commerce and supply chain modernization are providing support against the resulting surging supply. Can the sector continue its run?

Changing dynamics drive future performance

Demand slows, but remains strong

Net new demand totaled more than 500 million square feet (MSF) in 2021, followed by more than 400 MSF in 2022.2 This trend pushed vacancy rates below 4% for the first time and spurred double-digit rent growth. Industrial transactions in capital markets surged, and nearly one billion square feet of new industrial space came under construction across all U.S. markets.

Demand for new industrial space remains healthy by historical standards, but the pace has declined in recent quarters as U.S. economic growth has slowed.2 This trend may continue as long as the economy flirts with recession into 2024.3

E-Commerce provides a tailwind

E-Commerce and supply chain modernization will likely support positive net new demand. Packaging and shipping individual orders to doorsteps requires more warehouse space than shipping pallets to a store, resulting in 2-3x more industrial space required per dollar spent to support e-commerce compared to brick-and-mortar retail.4

This rising e-commerce penetration rate could help offset a slowdown in consumer demand in a slowing economy, but the pace of demand growth is still likely to be slower than in 2021 and 2022.

Supply is surging, but new starts are easing

A large number of construction projects have been delivered in 2023 amid tapering demand, resulting in moderately higher vacancy levels versus historic lows. Nevertheless, the national vacancy rate of 4.3% in the first quarter remains below the sector’s long-term average and less than pre-pandemic levels.4

New construction starts have pulled back dramatically, with starts in Q1 2023 just half of the peak starts in Q3 2022. Higher interest rates and tighter lending standards have increased the cost of commercial real estate development. Industrial projects typically take five quarters to complete, suggesting that the pace of new deliveries should continue to slow noticeably in 2024 and 2025.

Chart: Vacancy rates remain historically low

Regional challenges emerge, along with opportunities

Industrial fundamentals will likely remain strong by historical standards, even if the sector softens from its recent record performance. Of the top 80 largest industrial markets, only San Francisco has a vacancy rate higher than its historical average.

Even if all speculative space under construction is delivered completely vacant, overall vacancy rates would only rise to 6.4%, still below the historical average of 7.2%. This is an encouraging sign, as overall rent growth seems to have exceeded historical norms in every period where vacancy fell below historical averages.

Some markets and locations will be less affected by record oncoming supply. Coastal markets typically have less land available for development and have far less under construction, particularly in Mid-Atlantic and Northeast markets like Baltimore and Northern New Jersey. Even markets experiencing a wave of new supply have infill locations and submarkets with less competing supply under construction, meaning they should experience low vacancies and high rent in the near and long-term.

Bigger isn’t always better

With demand easing at the end of 2022, the completion rate (new deliveries as a percent of inventory) is greater than the absorption rate (new demand as a percent of inventory) for buildings larger than 500k sq. ft.4 Because the supply pipeline is also larger in this size cohort, vacancy is likely to rise despite higher demand for larger spaces.

By contrast, the completion rate for spaces less than 250k sq. ft. has slowed recently and continues to fall short of demand.3 The supply pipeline is far smaller, particularly in buildings less than 75k sq. ft. where less than 1% of the current stock is under construction.3

In this issue
Alternatives Private capital: The quest for quality
Seeking stability amid volatility. Top reasons that private capital managers are completing deals. Or not.
Alternatives Self-storage: It’s not like other sectors
Thriving on change. Storage is uniquely positioned to outperform throughout multiple real estate cycles.
Alternatives Farmland: Investing to feed a growing population
Spotlight on farmland. Investments in sustainably managed farmland may offer attractive financial returns.
Contact us
Our offices
London skyline
201 Bishopsgate, London, United Kingdom


1 Green Street, 2023.
2 Costar, 2023.
3 Moody’s Analytics, 2023.
4 Prologis Global Insights, 2020

The views and opinions expressed are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions, legal and regulatory developments, additional risks and uncertainties and may not come to pass. This material may contain “forward-looking” information that is not purely historical in nature.

Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. Any changes to assumptions that may have been made in preparing this material could have a material impact on the information presented herein by way of example. Performance data shown represents past performance and does not predict or guarantee future results. Investing involves risk; principal loss is possible.

All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such. For term definitions and index descriptions, please access the glossary on Please note, it is not possible to invest directly in an index.

Important information on risk

All investments carry a certain degree of risk and there is no assurance that an investment will provide positive performance over any period of time. Equity investing involves risk. Investments are also subject to political, currency and regulatory risks. Diversification is a technique to help reduce risk. There is no guarantee that diversification will protect against a loss of income. Debt or fixed income securities are subject to market risk, credit risk, interest rate risk, call risk, derivatives risk, dollar roll transaction risk, and income risk. As interest rates rise, bond prices fall. Foreign investments involve additional risks, including currency fluctuation, political and economic instability, lack of liquidity, and differing legal and accounting standards. These risks are magnified in emerging markets.

As an asset class, real assets are less developed, more illiquid, and less transparent compared to traditional asset classes. Investments will be subject to risks generally associated with the ownership of real estate-related assets and foreign investing, including changes in economic conditions, currency values, environmental risks, the cost of and ability to obtain insurance, and risks related to leasing of properties. Real estate investments are subject to various risks, including fluctuations in property values, higher expenses or lower income than expected, and potential environmental problems and liability. Please consider all risks carefully prior to investing in any particular strategy. A portfolio’s concentration in the real estate sector makes it subject to greater risk and volatility than other portfolios that are more diversified and its value may be substantially affected by economic events in the real estate industry. International investing involves risks, including risks related to foreign currency, limited liquidity particularly where the underlying asset comprises real estate, less government regulation in some jurisdictions, and the possibility of substantial volatility due to adverse political, economic or other developments. As an asset class, agricultural investments are less developed, more illiquid, and less transparent compared to traditional asset classes. Agricultural investments will be subject to risks generally associated with the ownership of real estate-related assets, including changes in economic conditions, environmental risks, the cost of and ability to obtain insurance, and risks related to leasing of properties.

Investors should be aware that alternative investments including private equity and private debt are speculative, subject to substantial risks including the risks associated with limited liquidity, the use of leverage, short sales and concentrated investments and may involve complex tax structures and investment strategies. Alternative investments may be illiquid, there may be no liquid secondary market or ready purchasers for such securities, they may not be required to provide periodic pricing or valuation information to investors, there may be delays in distributing tax information to investors, they are not subject to the same regulatory requirements as other types of pooled investment vehicles, and they may be subject to high fees and expenses, which will reduce profits. Alternative investments are not appropriate for all investors and should not constitute an entire investment program. Investors may lose all or substantially all of the capital invested. The historical returns achieved by alternative asset vehicles is not a prediction of future performance or a guarantee of future results, and there can be no assurance that comparable returns will be achieved by any strategy.

Responsible investing incorporates Environmental Social Governance (ESG) factors that may affect exposure to issuers, sectors, industries, limiting the type and number of investment opportunities available, which could result in excluding investments that perform well. ESG integration incorporates financially relevant ESG factors into investment research in support of portfolio management for actively managed strategies. Financial relevancy of ESG factors varies by asset class and investment strategy. Applicability of ESG factors may differ across investment strategies. ESG factors are among many factors considered in evaluating an investment decision, and unless otherwise stated in the relevant offering memorandum or prospectus, do not alter the investment guidelines, strategy or objectives.

Nuveen, LLC provides investment services through its investment specialists.

This information does not constitute investment research as defined under MiFID.

Back to Top