The kinks in logistics warehousing transactions that surfaced in the summer widened into the fall as a rapid and sharp rise in borrowing costs puts the red-hot segment into what could be called a “recalibration” mode.

Deals are still being made. However, their implementation takes more time. Debt is harder to secure as cautious lenders tighten their underwriting criteria. Investors retreated somewhat as higher borrowing costs increased the “squeeze ratio,” an unfavorable trend that implies a fall in prices for the same projected revenue stream.

Meanwhile, renters and lessees are rethinking their strategies as consumer spending on hard goods declines and Americans order more in stores and less on online platforms. Some have put projects on hold in search of clarity amid an increasingly clouded environment for both interest rates and tenant demand.

Other occupiers are now taking the plunge, trying to lock in space at current prices before they go even higher, Balestra said. One argument could be that any reduction in supply could actually drive up rents in certain markets.

Experts note that some investors and landlords insist on deals with shorter lease terms, believing that rents will rise. Tenants want 10-year leases, but landlords aren’t giving them that, said Jack Rosenberg, head of Colliers’ International Group’s national logistics practice (NASDAQ: CIGI )real estate consulting.

Landlords are reluctant to commit to such long terms and potentially miss out on an opportunity to raise rents in the interim, Rosenberg said.

None of this means that the tumultuous 12-year bull market in industrial real estate — mostly logistics, but also manufacturing — is coming to an end. The three main trends driving industrial demand—population growth, e-commerce activity, and the need to maintain higher buffer stock levels to ensure product availability—remain in place.

“Market fundamentals have never been better,” Balestro said. The surge in interest rates “creates a clear disconnect between industry fundamentals and capital markets,” he said.

Amanda Ortiz, Colliers’ national director of industrial research, said the average purchase price for a property hit a record $145 per square foot in May, despite the slowdown in sales.

According to Ortiz, high rents reflect positive secular trends that are likely to survive the current bouts with dearer money and macro uncertainty. “The net operating income growth forecast remains strong, which should attract more capital to real estate,” she said.

The third-quarter data reflects a continued resilient industrial market, said Carolyn Salzer, head of logistics and industrial research at real estate consultancy Cushman & Wakefield plc. (NYSE: CWK), a real estate services firm. The vacancy rate continued to hover around 3.2%, slightly higher than in the second quarter but still at an all-time low, according to Cushman data.

Asking rents in the third quarter nationwide should reach $8.70 per square foot, which would be a 22% year-over-year increase, according to Cushman data. In the West, which includes areas of California where logistics warehouse space is virtually non-existent, rents are as high as $12.99 per square foot. In the Northeast, with similarly limited space, rents reached $11.33 per square foot.

Net absorption, which calculates the number of square feet occupied during a period minus the number of square feet vacated, was 108 million square feet, according to Cushman. That’s down from the 132 million square feet of net absorption in the second quarter, but still a solid number, Salzer said.

The data represents the eighth consecutive quarter of more than 100 million square feet of positive net absorption. Before the pandemic, there had never been a quarter of more than 100 million square feet of net absorption, Salzer said.

The industrial construction pipeline reached an all-time high of 716.9 million square feet, up 2.6% from the previous record set in the second quarter. The profit came despite a historically high number of completed projects in the quarter, Salzer said.

Much of the backlog caused by supply chain issues, port congestion and material shortages has begun to unwind, she said.

Tough conditions and healthy demand will keep fears of overbuilding at bay in the near term, Salzer said. Still, as more projects get underway, some markets could face overcapacity, especially if tenant demand slows, she said.

In markets like Dallas/Fort Worth, which already has a lot of available capacity, vacancy rates could rise and rents fall in the coming months, Trammell Crow’s Balestra said. He said high-density markets such as Southern California’s maritime and airport region, the Inland Empire about 80 miles to the east, and the New York, New Jersey and central Pennsylvania corridors would be less affected.