Fundamentals Remain Strong, but Uncertainty Lies Ahead
“A fast start to the quarter fueled initial optimism that industrial growth would continue into Q3. However, after recent economic turbulence, the short-term market outlook is more uncertain than it has been in some time.” Blanton Hamilton, Research Analyst
- Tenant demand shows little sign of slowing down as market asking rates rose to $7.50/SF NNN.
- Charlotte’s industrial development pipeline remains robust with 12.61 MSF of product under construction.
- Rising interest rates, high inflation, and low consumer confidence loom on the horizon as potential headwinds to continued growth.
The second quarter picked up where the first quarter left off, as developers and tenants alike continued to seek entry into the Charlotte Industrial market. More than 4.2 million square feet was absorbed in Q2 2022, emphasizing that the demand for space remains high. Despite that, recent macroeconomic indicators cloud the market’s short-term outlook. Interest rates are up 150 basis points this year, and many economists are pricing in additional rate hikes going forward. On top of that, inflation is the highest it has been in 40 years, which has caused consumer confidence to fall. While these trends are of concern, it is too early to know what impact will be felt within the Charlotte industrial market.
Absorption, vacancy, and supply continue to support the Charlotte industrial market’s strong fundamentals. Vacancy fell to 4.10% in Q2, 260 basis points lower than Q2 of the previous year. Absorption grew by almost a million SF, but at a slower rate quarter-over-quarter. Several projects had to push back delivery dates due to ongoing supply chain issues, so expect the new supply in Q3 to quickly match the 1.9 million SF from this quarter.