Historic Levels of New Supply Push Industrial Vacancy Rates Higher in Q1 2024 

Key Takeaways: 

• Industrial rents continued upward trends, with March in-place rents growing 7.3% Y-o-Y in March to $7.85 per square foot 
• Historic levels of new supply continued to push vacancy rates higher, reaching 5.2% at the end of March  
• 405.9 million square feet of new supply was underway as of March, roughly two-thirds the size of last year’s volume 
• Industrial transactions totaled $10 billion through Q1 2024, at an average sale price of $147 per square foot 
• The Bay Area recorded the largest sales volume in the U.S. through March, driven by one $1.2 billion transaction 
• Chicago recorded the third-largest sales volume nationwide, totaling $585 million 
• Miami boasted the highest rent growth in the U.S., up 11.9% year-over-year, outpacing Southern California markets 
• At $10.49 per square foot, New Jersey in-place rents were the highest in the Northeast 

Trends & Industry News: Supply Chains Back in Spotlight 

Recent events that interrupted global shipping lanes in Baltimore and the Panama Canal serve as a reminder of the ripple effects caused by disruptions, according to our latest U.S. industrial market report. 

The collapse of the Francis Scott Key Bridge in Baltimore will impact the trade of goods and commodities and increase traffic at other ports along the Eastern Seaboard. Still, it won’t lead to massive disruptions in the global supply chain like those that occurred when the Ever Given got stuck in the Suez Canal in 2021.  

Overall, The Port of Baltimore is the East Coast’s fifth busiest and the top port for automobile imports. Its status as the nation’s furthest inland port also makes it a leader in imports of farm equipment and exports of coal. Ships are being rerouted to other coastal ports, and temporary openings have allowed some smaller ships that were stuck to leave the port.  

While the port’s main channel is set to fully reopen at the end of May, reconstruction of the bridge will take much longer. Truck shipping in the region will remain muddled, and some firms may continue rerouting shipments to avoid issues with transporting items once they are taken off ships. 

While the impact of the bridge collapse will remain mostly localized along the East Coast, other significant threats to global supply chains have emerged this year. Two of the world’s key shipping corridors currently face significant disruptions.  

The Panama Canal has been operating at reduced capacity this year due to a drought in the region, which has created a lack of water to fill the canal’s locks. The average number of daily ship crossings through the canal was down roughly 33% year-over-year during the first quarter. As Central America begins its rainy season, supply chain managers are holding their breath in hopes that the drought will come to an end. Even if it does, however, it is anticipated that it will take until the end of the year for activity to return to normal. 

On the other side of the globe, the Yemen-based Houthi militia has been firing missiles at ships in the Red Sea and the Gulf of Aden. Firms that learned lessons about supply chain resiliency during the COVID-19 pandemic will be more prepared for these mounting challenges.  

While these risks do not yet appear to be a major cause for concern, they are worth monitoring. Not only did supply chain disruptions create imbalances in the industrial sector, but they were also a major driver of inflation that reached levels not seen in four decades. If supply chain disruptions cause inflation to rise once again, a soft landing becomes much less feasible, and the chance of a recession is higher. 

Rents and Occupancy: Industrial Vacancy Rates Continue to Tick Up 

National in-place rents for industrial space averaged $7.85 per square foot in March, an increase of 17 cents from February and up 7.3% year-over-year, our latest U.S. industrial market report reveals. The average rate for new leases signed in the last 12 months was $10.43 per square foot, $2.58 more than the average for all leases. 

In-place rent growth was highest in Miami (11.9% increase over the last twelve months), which barely edged out Inland Empire (11.8%). A market outside Southern California leading the nation in rent growth has been uncommon in recent years. SoCal continues to hold the third (Los Angeles, 11.2%) and fourth (Orange County, 10.8%) spots. 

Average Rent by Metro 

Rent growth is slower in landlocked markets, with Kansas City (3.8%), Detroit (4.0%), St. Louis (4.5%) and Denver (4.6%) all among the bottom five markets for lowest increases of in-place rents. Houston (4.5%) was the only market with a seaport among the bottom 10 markets. 

The national vacancy rate was 5.2% in March, up 20 basis points from the previous month. The increase in industrial vacancy rates in recent quarters can be attributed to a few causes. Historic levels of new supply have been delivered in recent years, with more than 1 billion square feet added to the market between 2022 and 2023 alone.  

Construction: Completed & Forecasted (Million Sq. Ft.) 

The e-commerce boom that fueled so much of the demand for space has cooled of late. Tenants have been much more hesitant to sign leases in the face of economic uncertainties driven by high inflation and interest rate increases. Occupiers are more focused on controlling costs now than they were in previous years, which has slowed the leasing velocity that pushed vacancies to record lows coming out of the pandemic. 

Supply: Under-Construction Pipeline Continues Steady Decline 

Across the U.S., 405.9 million square feet of industrial space was under construction as of March, representing 2.1% of stock, the latest industrial property market report shows. The under-construction pipeline is roughly two-thirds the size it was at this time last year as new starts have dried up in response to normalizing demand and the rising cost of capital. 

There absolutely has been a rebalancing in our industrial deliveries forecast to account for the slowdown in starts we had in 2023 and into 2024. However, we anticipate a rebound in deliveries in the back third of the decade.

Peter Kolaczynski, Director, CommercialEdge

The Inland Empire has felt the construction slowdown the most. The under-construction pipeline has plummeted by two-thirds in the market, going from 27.2 million square feet last year to 9.2 million square feet this year. The Dallas-Fort Worth Metroplex also saw its construction pipeline (24.5 million square feet) drop by nearly 60% compared to last year. In contrast, the supply pipeline is strong in Phoenix, with 41.7 million square feet under construction, but still 23% below the 54.5 million in the pipeline during the same period last year.  

National Industrial Supply Pipeline Trend (Million Sq. Ft.) 

Transactions: One Sale Large Enough to Swing National Figures 

Industrial sales totaled $10 billion in the first quarter of 2024, according to our industrial property market report, with properties trading at an average of $147 per square foot. 

Both the number of transactions and total sales volume have fallen this year as pricing remains uncertain. However, the average sale price increased by more than 22% in the first quarter compared to Q4 2023, though that surge was skewed by one large deal. 

2024 Year-to-Date Sales (Millions) 

The largest sale recorded during the first quarter of 2024 was the $1.2 billion sale of a biotechnology manufacturing facility in the Bay Area. This one sale accounts for 12% of all national volume in the first quarter, while the building’s $2,810-per-square-foot sale price was large enough to increase the national average price, which otherwise would have been $130 per foot. According to our industrial property outlook, we expect biotechnology and biomanufacturing to continue to be an in-demand sector in the Bay Area. 

Western Markets: Biotech Manufacturing Facility Pushes Bay Area Sales Volume Over $1 Billion 

From January to March this year, investors sealed $3.74 billion in industrial deals across leading Western markets. Notably, the Bay Area took the lead, representing more than half of the region's sales volume with $1.68 billion in closed deals.  

Among U.S. markets, the Bay Area also stood out as the only one with transaction volumes exceeding $1 billion due to the $1.2 billion deal involving the Swiss firm Lonza Group's acquisition of a biotechnology manufacturing facility at 1000 New Horizons Way in Vacaville. The building was put on the market last year by Genentech, which has made drugs for cancer, arthritis and COVID-19 at the plant. This transaction also boosted the Bay Area's average sale price to $777 per square foot. 

West Regional Highlights  

Los Angeles and the Inland Empire had the next-largest industrial sales volumes in the West, with investors trading $545 million and $382 million, respectively. In Los Angeles, properties traded at an average of $325 per square foot, while the average sale price in the Inland Empire stood at $212 per square foot.  

After over two years of being the frontrunner in year-over-year rent growth, the Inland Empire's increase of 11.8% has now been surpassed by Miami's 11.9% gain at the end of March. Despite Miami rising to the top, Southern California continued to see strong rent increases, with lease rates rising 11.2% year-over-year in Los Angeles and 10.8% in Orange County in March.  

The Evolution of Rent Growth in Miami vs. the Inland Empire  

The next-largest gains in the West were registered in Seattle and Phoenix, with rents climbing 8.5% and 7.9%, respectively, over the same period.   

Thanks to some of the highest growth in listing rates, Western U.S. industrial markets remained the priciest in the country — $15.44 per square foot in Orange County, $14.31 per square foot in Los Angeles and $13.10 per square foot for industrial space in the Bay Area. Seattle was the only other Western market outside California with double-digit lease rates, at $11.13 per square foot.  

Meanwhile, the largest premium for new leases signed over the past 12 months was posted in the Inland Empire, averaging $7.41 per square foot. The next-largest premiums for new leases were recorded in Los Angeles ($5.08 per square foot), the Bay Area ($4.35 per square foot) and Orange County ($4.31 per square foot).  

With the national cooldown in development, the Inland Empire saw its construction pipeline drop by two-thirds, from 27.2 million square feet in March 2023 to 9.2 million square feet in March 2024. The Inland Empire’s construction pipeline now accounts for 1.4% of its existing inventory. 

Considering planned projects as well, the market might expand its inventory by 8.5%. Planned projects comprise 48.5 million square feet, suggesting that construction might pick up once capital becomes more widely available and vacancy rates begin to drop.  

In the past year, industrial vacancy rates in the Inland Empire surged from 1.7% to 6%, following a period of rapid expansion, with over 90 million square feet of new space added since 2020. However, this industrial boom has triggered substantial resistance from local communities, governments and environmental groups. 

Midwestern Markets: Chicago Records Third-Largest Sales Volume Nationwide, Totaling $585 Million 

Logistics hubs in the Midwest continued to have the lowest vacancy rates among the leading industrial markets in the U.S. Columbus and Kansas City led the pack at 2.4%, followed by Indianapolis with 3.2% vacancy. Despite low vacancy rates, rent growth was slower in these markets than in metros with higher vacancies in coastal markets, rising 3.8% in Kansas City, 5% in Indianapolis and 5.9% in Columbus — the largest in the region — year-over-year in March. 

Overall, all markets in the Midwest logged asking rents below the national average of $7.85 per square foot, and year-over-year rent growth also stayed below the 7.3% national average. In terms of asking rents, the Twin Cities and Detroit continued to come closest to the national figure, with in-place rents rising 5.5% (to $6.90 per square foot) and 4% ($6.79 per square foot). The region's slower rent growth is due to the rapid expansion of industrial stock in recent years. These locations have more developable rent than port markets, giving tenants greater negotiation leverage on rents than in other coastal markets. 

Midwest Regional Highlights 

On a percentage-of-stock basis, Kansas City had the largest supply pipeline in the Midwest, with 3.9% of its existing stock underway, equal to 11.4 million square feet. Columbus followed with 2.3% of its current stock underway across 7.2 million square feet. The Twin Cities stood on the other end of the spectrum, with 911,229 square feet underway, equal to merely 0.3% of local inventory. 

Looking at sales volume, Chicago led the Midwest and had the third-largest volume nationwide, with investors closing $585 million through the first quarter of 2024 at an average sale price of $97 per square foot. Columbus recorded the next-largest sales volume, with industrial deals totaling $151 million closed at an average of $74 per square foot. 

Southern Markets: Miami Posts Highest Rent Growth Nationwide, Up 11.9% Y-o-Y in March 

Among the nation’s top 30 industrial markets, Miami posted the largest rent growth, rising 11.9% year-over-year in March and overtaking Southern California for the first time since we started publishing the U.S. industrial market report in 2021. Atlanta and Nashville came next, with lease rates growing by 7.8% and 7.5%, respectively — just above the national average of 7.3%. In contrast, Houston saw the lowest rent growth, increasing 4.5% compared to year-ago figures. 

Miami also logged the fourth-highest in-place rents in the U.S. at $11.28 per square foot, coming in after Orange County ($15.44 per square foot), Los Angeles ($14.31 per square foot) and the Bay Area ($13.10 per square foot). The South Florida market also posted the second-widest lease spread in the U.S., with new leases signed at $17.10 per square foot over the past 12 months — $5.82 more per square foot than in-place rents.   

Spread Between New Leases and In-Place Rents 

The next-largest in-place rents in the South were logged in Baltimore, at an average of $7.85 per square foot — in line with the national figure. At the other end of the spectrum stood Memphis, with lease rates at $3.92 per square foot, marking the lowest in-place rents among the leading industrial markets.  

In terms of vacancy rates, Nashville and Charlotte led the South, with 3.3% and 3.6% available industrial space, respectively. Conversely, the highest vacancy rates were logged in Tampa at 7.4% and in Baltimore at 6.3%.  

Dallas-Fort Worth continued to have the most significant development pipeline in terms of square footage in the South. At the end of March, the Metroplex had 24.5 million square feet underway, accounting for 2.6% of existing inventory. Nonetheless, the market’s pipeline shrunk substantially compared to the 59.7 million square feet that were under construction during the same period last year. On a percentage-of-stock basis, however, Charlotte led the South with 3.9% of its stock under construction, encompassing 12.3 million square feet.  

South Regional Highlights 

Dallas-Fort Worth also logged the largest sales volume in the South and the second-largest nationwide, totaling $831 million year-to-date through March. Next was Houston, with $314 million in closed industrial deals. Regarding sale prices, Nashville ranked first with properties trading at an average of $164 per square foot, followed by Dallas-Fort Worth at $145 per square foot and Tampa at $136.  

Northeastern Markets: New Jersey Remains Priciest Industrial Market in the Northeast With In-Place Rents at $10.49 Per Square Foot 

As of March, New Jersey was the priciest industrial market in the Northeast, with in-place rents rising 8.7% year-over-year to $10.49 per square foot. Boston was next, with an average asking rent of $10.22 per square foot, following a 7.2% year-over-year increase. Meanwhile, Bridgeport in-place rents rested at $8.94 per square foot, 6% above year-ago figures.  

The Northeast's fourth leading market, Philadelphia, was slightly behind the national average in-place rent of $7.85 per square foot, coming in at $7.67 per square foot. Rent growth was also lagging in the market, increasing by 5.6% year-over-year, below the national 7.3% growth rate.  

In the Northeast, the largest lease spreads were logged in New Jersey ($3.07 more per square foot), followed by Bridgeport ($2.67) and Philadelphia ($1.95). 

Northeast Regional Highlights 

Regarding industrial vacancy rates, only two markets recorded rates below the national average of 5.2%. Specifically, Bridgeport had a vacancy rate of 5.1%, while Philadelphia had 4.9% of available industrial space by the end of March. 

As of March, Philadelphia led the Northeast in development, with 7.7 million square feet of industrial space in the pipeline, equal to 1.7% of the local inventory. In contrast, Bridgeport had only 274,000 square feet underway, accounting for just 0.1% of its existing inventory.  

When it comes to sales, New Jersey recorded the most considerable transaction volume, totaling $520 million in the first quarter of 2024, with properties trading at $306 per square foot. Boston saw the next-largest sales volume, with investors trading $121 million so far this year at $175 per square foot. 

Economic Indicators: Producer Prices Creeping Back Up 

Producer prices rose 2.1% year-over-year, the highest increase in 11 months, according to the Bureau of Labor Statistics. Despite the annual rate ticking up, the Producer Price Index (PPI) saw a significant deceleration in March from the previous month. After growing 0.6% in February, the PPI increased just 0.2% in March. Services increased by 2.1% year-over-year, while the goods portion of the index increased by 0.9%. 

Economic Indicators 

If the PPI continues to move upward, it could be bad news for the industrial sector and the overall economy. Producers saddled with higher costs for goods and services are much less likely to sign new leases or renewals with increases. At a time when firms are looking to reduce costs, increases in input prices could lead to a reduction in real estate costs. The PPI is also a leading indicator for the more closely watched Consumer Price Index. 

Consumer prices have increased more than expected in recent months and if increases in producer prices are passed on to consumers, it may lead to the Fed holding off on interest rate cuts through the summer. 

Download the complete April 2024 report for a full picture of how U.S. industrial markets evolved in March, including insights on industry indicators and economic recovery fundamentals. 

You can also see our previous industrial reports.

Methodology

The monthly CommercialEdge national industrial real estate report considers data recorded throughout the course of 12 months and tracks top U.S. industrial markets with a focus on average rents; vacancies (including subleases but excluding owner-occupied properties); deals closed; pipeline yield; forecasts; and the economic indicators most relevant to the performance of the industrial sector.

CommercialEdge collects listing rate and occupancy data using proprietary methods.

• Average Rents —Provided by Yardi Market Expert, a cutting-edge service that uses anonymized and aggregated data from other Yardi platforms to provide the most accurate rental and expense information available.
• Vacancy — The total square feet vacant in a market, including subleases, divided by the total square feet of industrial space in that market. Owner-occupied buildings are not included in vacancy calculations.

Stage of the supply pipeline:

• Planned — Buildings that are currently in the process of acquiring zoning approval and permits but have not yet begun construction.
• Under Construction — Buildings for which construction and excavation has begun.

Sales volume and price-per-square-foot calculations for portfolio transactions or those with unpublished dollar values are estimated using sales comps based on similar sales in the market and submarket, use type, location and asset ratings, sale date and property size.

Year-to-date metrics and data include the time period between January 1 of the current year through the month prior to publishing the report.   

Market boundaries in the CommercialEdge industrial report coincide with the ones defined by the CommercialEdge Markets Map and may differ from regional boundaries defined by other sources.