After two years of declining availability, the industrial real-estate vacancy rate is up again. According to real estate services firm Cushman & Wakefield, the first quarter of 2023 posted a 3.6% nationwide industrial real-estate vacancy rate marking the third straight quarter increase. Warehouse space and logistics networks continue to be pared back and the remaining half of 2023 will appear to follow a familiar trajectory. 

The pandemic fueled a red-hot warehouse hiring spree adding roughly 700,000 workers over a two-year period. Average hourly pay increased by 8% and investment in logistics networks was beefed up. Tales of companies worried that workers would leave their centers for modest pay increases down the street were common. Workers maintained tremendous leverage with US warehousing employment hitting a peak of 1.96 million jobs in June 2022. Since then, however, over 41,000 jobs have been shed. 

Like most sectors, broader economic uncertainty is driving this cooling trend. There’s been a pullback of online sales and a looser US labor market has left employers with little wiggle room. Many companies had put in place attendance bonuses and similar incentives during 2021 and 2022 to retain workers, especially around the end-of-year peak season. The market for 2023, however, is drastically different, and even though the US jobs market overall has remained strong (consumer spending has boosted 1.5 million jobs over the first five months of 2023), the nature of the spending is what matters. 

For example, Americans spent more on services in May, but less on goods. Despite recession fears and lingering inflation, air travel was a service that continues on an upward trajectory. Many airlines project healthy profits and a continued strong summer demand, as does the healthcare industry. But warehousing and distribution networks rely on goods. E-commerce sales dropped by 15.1% in the first quarter of 2023. Contrast this with the middle of 2020 when e-commerce sales represented 16.5% of overall US retail sales. 

According to the Bureau of Labor Statistics, compared to two years ago the number of warehouse workers is still approximately 275,000 jobs ahead. But the ramp-up was so extreme that it will take time to move back to a more calibrated level. The average hourly wage for a US warehouse worker stands at $23.71 – this remains 8% higher than in 2022. Contrast this with pre-pandemic hourly wages in the $14 to $18 range and there is room for downward movement. E-commerce sales will eventually pick up but it’s hard to say if the pandemic peaks can be replicated again.