Welcome to the Logistics Liaison, a monthly briefing on the top supply chain issues in wholesale distribution. I’m Vesna Brajkovic, Senior Editor at MDM and a former transportation reporter. Each month, I’ll dive into a logistics/transportation topic and dip into my industry contacts to help break down how it affects your business. This month: distribution centers/warehouse space.

New construction sparked by the skyrocketing demand for sprawling distribution centers and warehouse buildings has left rising vacancies as demand tapers off.

Between 2020 and 2024, developers added 1.3 billion square feet of new space, effectively doubling the market of “big-box” distribution centers and warehouses — modern buildings 200,000 SF and larger with ceiling heights of at least 28-feet clear, according to a report published by real estate brokerage firm Colliers.

Meanwhile, the demand for this industrial space has continued to drop, particularly in buildings between 500,000 and 749,999 square feet where vacancy reached 11.7%. Most of the demand in 2024 came from the largest of the distribution centers (750,000+ SF), which has the lowest vacancy rate at 10.2%.

Grainger’s newest facility under construction, for example, is a 1.2 million-square-foot DC in the Greater Houston area, which will rank among the company’s largest and allow the company to expand its stocked industrial supply products in the market from 150,000 to as many as 300,000.

MDM Names Grainger and Ferguson “Industry Titans”

The lower vacancy rates and higher net absorption (indicator of actual demand) among the largest distribution centers and warehouses — paired with higher vacancies and less net absorption in mid-sized facilities — could suggest distributors are either (1) consolidating operations into massive developments to maximize efficiencies or (2) scaling down to smaller, more nimble facilities closer to urban centers.

We’ll explore a few regions and see which areas distributors have been eyeing, including highlighting the vacancy rates within the largest facilities in each region.

Regional Snapshot: Distribution Center Vacancies

Colliers’ report on big-box facilities shares that while six core markets — the Inland Empire, Dallas-Fort Worth, Atlanta, Chicago, Northern-Central New Jersey and Eastern Pennsylvania Tri-State — “remain favorites” by distributors, several cities with fast-growing population centers and logistics hubs are emerging as secondary markets.

I will highlight the metrics of four regions found within the report, the top two regions with the highest vacancy rates and the top two with the lowest. Depending on your business position, each list will give a glimpse into the demand and opportunities within the region.

Markets with Highest Vacancy

Greenville, SC: “… among the nation’s fastest-growing regions, driven by the industrial sector.” — John Montgomery, Managing Director of Colliers, South Carolina

• 1 million+ SF projects by Isuzu North America, Custom Goods and GXO Logistics cut the market’s availability of the largest big-box facilities in the market (13.4% vacancy).
• Overall big-box vacancy rate in the region was 20.3%
• Construction dropped to 2.4 million SF by the end of 2024, 88% lower than the peak of 19.9 million SF underway two years ago.
• Logistics market advantage with access to major interstates and an extensive rail network

Phoenix, AZ: “Remains strong despite headwinds due to overbuilding and vacancy concerns.” — Don MacWilliam, Colliers Vice Chair

• New supply of big-box facilities pushed vacancy up to 18.9%
• Vacancy was highest in buildings between 500,000-749,999 SF (28.4%); and lowest in buildings 750,000+ SF (11.5%)
• Net absorption of 9.6 million SF during 2024 indicated continued demand big-box facilities
• Construction has slowed from a peak of 24.8 million SF underway in 2022 to 6.6 million SF by the end of 2024.

Markets with Lowest Vacancy

Inland Empire, CA: “While gross absorption has been steadily rising, net absorption has slowed due to supply leakage, causing vacancy to climb.” — Mark Zorn, Colliers Vice Chair

• Vacancy in the region is on a slow climb from its bottom at 0.3% two years ago, now at 7.7%,
• Net absorption was 1.1 million SF for the year, with positive demand in buildings 500,000 SF and larger. Net absorption has been negative in buildings between 200,000 SF and 499,999 SF since the beginning of 2023, driven by new vacancies in existing buildings.
• Space under construction dropped to 10.9 million SF, 64% below the 30.2 million SF underway two years ago.
• Strategic area near the twin ports of Los Angeles and Long Beach.

Nashville, TN: “Prospect temperament remained bullish for the market with a noticeable increase in manufacturing users looking to enter the market.” — Will G. Smith, First Vice President

• Big-box vacancy rate decreased in 2024 to 7.9%. Vacancy was highest in buildings between 200,000 and 499,999 SF (10.2%), and lowest in buildings between 500,000 and 749,999 SF (5.6%).
• Net absorption of 3.2 million SF, while still positive, was 34% lower than 2023’s total, and 89% of 2024’s demand was in buildings smaller than 750,000 SF.
• At the end of 2024, 4.6 million SF was under construction in the region. “The development pipeline continues to be strong in the Nashville market, in contrast to other markets where speculative development has fallen off,” Colliers reported.
• Its central location and expansive modes of transportation make it advantageous for distribution, and the region’s skilled workforce and low cost of doing business have also helped make it a hub for manufacturing, according to Colliers.

View the full report from Colliers here.

In March, Industrial SalesLeads, which monitors plant construction, expansions and modernizations, logged 183 new projects within what it classified as the distribution and supply chain industry. Twenty of those were distribution/fulfillment centers, while 163 were classified as industrial warehouses.

Some highlighted distribution center projects below (listed in order of scale) provide insight into the other areas companies are investing in:

• Retail and grocery chain to construct a 1.4 million-square-foot distribution center in New Kent, VA.
• Global transportation and logistics company seeks approval to construct a 905,000-square-foot distribution center in Laredo, TX.
• An electrical equipment manufacturer seeks approval to construct a 475,000-square-foot distribution center Merrillville, IN.
• An industrial component manufacturer to renovate and upgrade the equipment in a recently acquired 472,000-square-foot distribution center in Columbus, OH.

Colliers expects big-box vacancy to “peak and begin to fall again in 2025 as new supply falls in line with levels of demand and the market adjusts.”

Stat Check

This section of MDM’s Logistics Liaison includes key indicators which together help gauge the health of the supply chain. 

🚛 Trucking: Improved volume and utilization offset weaker freight rates to improve FTR’s Trucking Conditions Index in February to -0.21, but outlook is notably weaker due to expectations of higher inflation and interest rates and a weaker labor market.

🚂 Rail: AAR’s Freight Rail Index rose 0.7% in March following a 0.7% increase in February. The recent gains suggest that, despite pervasive policy-related uncertainties and continued manufacturing weakness, economic fundamentals as reflected in rail volumes remain positive.

🚢 Ports: Drewry’s North American Container Port Throughput Index increased 3.3% to 116.2. NRF’s Global Port Tracker logged 2.06 million TEUs in February, down 7.5% from January but up 5.2% YoY. It was the busiest February in three years even though the month is traditionally the slowest of the year.

📦 Freight: The shipments component of the Cass Freight Index was unchanged in March. Shipment declines narrowed to 5.3% from 5.5% in February.

🏭 Manufacturing: ISM’s Manufacturing PMI reading was down 0.3 percentage points to 48.7%, revealing a continued overall month-to-month slowdown, driven by lower production and exports. 

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