Tenant Demand Anchors the Market Amid Slowdown Concerns
“The streak continues as the Charlotte industrial market experienced another drop in the vacancy rate with tenant demand remaining strong. However, economic headwinds and market uncertainty will be factors going forward in the short term.” Blanton Hamilton, Research Analyst
- Fierce competition for limited available space increased rental rates to $7.77 PSF NNN.
- Tenants continue to want a piece of Charlotte’s growth, as evidenced by the 2.8 MSF of net absorption during the third quarter.
- 12.96 MSF of product under construction shows Charlotte’s industrial development pipeline remains strong, but increased borrowing costs have caused some developers to press pause on new projects.
Leasing activity in the Charlotte Industrial market showed little sign of slowing down during the third quarter. Tenants continue to see Charlotte as a growth opportunity, as evidenced by the 2.8 million square feet of net absorption. This dynamic has helped offset market fundamentals indicating slower deal volume in the short term. The Federal Funds Rate increased another 75 basis points in Q3, creating a two-fold effect. First, lenders are hesitating to provide financing for new deals, leading some developers to press pause on new projects or drop them entirely. Secondly, the rate hikes have complicated the valuation of completed projects coming to market, leading to a shallower pool of potential buyers. These trends suggest a slowdown may be eminent, but just how severe it will be remains to be seen.
Absorption, vacancy, and supply continue to support the Charlotte industrial market’s strong fundamentals. Vacancy fell to 3.69% in Q3, the fifth consecutive quarterly decrease. Absorption fell by almost 1.5 MSF from last quarter, due to a lower level of available supply. New supply continues to fall in line with historical numbers, and with Charlotte’s robust development pipeline, expect that to continue in Q4.