Warehouse demand is cooling down from red hot to medium hot. Industrial vacancy ticked up in the third quarter from 3% to 3.2%, as developers completed a record 148 million square feet. Warehouse tenants occupied 108 million square feet in the quarter, down 18% from the prior three months, in the first national quarterly decline in industrial demand since mid-2020. But Industrial rents have increased more than 15% year over year.
The retail market is quietly posting its best year for rent growth in decades. Retail rents have pushed to record highs in 2022, as the sector remains in an impressive recovery coming out of the worst of the pandemic. Average triple-net asking rents are up by 4.5% across the U.S. over the past 12 months, with the pace of growth accelerating since the start of the year. Retail rent growth should moderate over the coming quarters as economic headwinds increase.
Fundamentals have begun to soften for apartments. Leasing activity during the spring and summer season significantly underperformed. As a result, new supply additions over the past three quarters have outpaced demand. The oversupply situation has helped push the national vacancy rate up from an all-time low of 4.7% just a year ago to 5.4% today. U.S. apartment prices sank for the first time since the start of the pandemic during the third quarter. The pullback in multifamily pricing comes as demand is weakening and rents are falling due mainly to affordability issues.
The office market remains depressed. New office leases are fewer and smaller than before the pandemic. Total office space leased in Q3 2022 was the lowest in five quarters. The average office size has shrunk by 15% since 2019. Deal activity is 18% lower year over year and 15% lower since Q3 2019.