Overall net absorption was positive for an impressive 38th consecutive quarter, with occupancy gains of 60.1 million square feet year-to-date, however the 167.4 million square feet absorbed was 18% lower than the same time a year ago. While continued positive net absorption is welcome news, the fact that 2019 net absorption remains well below 2018’s pace signifies that we are past the peak of this cycle. Despite a drop in activity compared with the previous year, fundamentals for industrial real estate remain solid, with low vacancies and record high asking rents and product under construction.

One trend that continues is the industrial market’s reliance on new construction for positive net absorption. Because of tenants’ insatiable demand, core markets — especially with land available to develop — are doing exceptionally well. Case in point is Chicago, who finished the third quarter with the most construction completions (17.2 million square feet), because of a massive amount of new construction, much of which was occupied at the time of completion. Because of this, Chicago posted year-to-date occupancy gains of 17.6 million square feet, the most in the country.

The rest of the top five markets for activity were Dallas-Fort Worth, Inland Empire, Atlanta, and rapidly emerging market, Greenville-Spartanburg. While net absorption for the year is down, the amount of markets posting negative overall net absorption is decreasing. At the end of Q2 2019, 20 markets posted year-to-date negative net absorption, while at the end of the current quarter (Q3 2019), only 13 markets posted negative absorption. The markets experiencing the most activity growth (absorption as % of inventory) include emerging markets Savannah, Greenville-Spartanburg, Salt Lake City, Las Vegas, as well as the Inland Empire.

The U.S. industrial market is at a record 337 million square feet under construction. While this may stoke fears of overbuilding, the percent of build-to-suits is increasing and preleasing on spec development is solid. While the market reached its peak in 2017, fundamentals will be robust for the foreseeable future with low vacancies and high asking rents well into 2020.