Shifting Demand and Supply Glut Drives Cooldown in Top Industrial Markets 

Key Takeaways:

• Southern California industrial markets saw softness for the first time in years, with the average cost of a new lease decreasing by $1.98 in Los Angeles and by $3.37 in the Inland Empire year-to-date
• National industrial in-place rents averaged $8.15 per square foot, up 7.3% year-over-year 
• The national vacancy rate stood at 6.4%, up 30 basis points month-over-month 
• Nationwide, 379 million square feet of industrial space was under construction, a significant drop from year-ago levels of nearly 595 million square feet 
• Industrial transactions totaled $30.7 billion through the first seven months of the year at an average of $135 per square foot 
• Kansas City’s industrial pipeline grew from 7.8 million square feet one year ago to 11.8 million square feet underway in July 
• Southern markets saw the widest lease spreads across the U.S., with Miami in the lead as tenants paid $5.76 more per square foot for new leases, followed by Charlotte ($3.94) and Dallas-Fort Worth ($3.57) 
• Although Boston posted the highest vacancy rate among leading industrial markets in recent months, its vacancy rate saw a 30-basis-point slip to 8.5%  

Trends & Industry News

Southern California Sees Signs of Slowdown  

The industrial markets in Southern California experienced softness for the first time in years in 2024. This downturn is attributed to cooling demand coupled with a record level of new supply, leading to higher vacancy rates and slower rent growth, according to our latest U.S. industrial market report. While the long-term fundamentals for the region remain strong, the cooldown is expected to remain for the near term, our industrial property outlook indicates. 

In-place rent growth remained strong in the region, with rates increasing by 12.4% over the last 12 months in the Inland Empire, 11.0% in Los Angeles and 8.7% in Orange County. While in-place rents continued to rise, the average cost of a new lease has decreased this year so far by $3.37 per square foot in the Inland Empire and by $1.98 in Los Angeles, but only by 46 cents in Orange County.  

The largest REIT in the industrial space is also observing emerging cracks in Southern California. In its second-quarter earnings call, Prologis described demand in the region as “sluggish” and said that they anticipate soft conditions to continue over the next 12 months. Prologis noted that their effective rents for the region have been falling, primarily due to expanding concessions.  

Even if the rise in vacancy and the drop in new lease pricing were more than anticipated in
Southern California, the expectation would be for these markets to stabilize and the softening to plateau.

Peter Kolaczynski, Director, CommercialEdge 

While the industrial markets in the region have cooled, the Ports of Los Angeles and Long Beach recently recorded two of their busiest months ever, signaling that the softness may be short-lived. The Port of Los Angeles handled 940,000 twenty-foot equivalent units (TEUs) in July, marking a 37% increase year-over-year and its busiest month since the all-time high reached in May 2021. The Port of Long Beach saw a similar surge, handling 882,000 TEUs in July, up 53% year-over-year. Some of the increased activity at these ports may be attributed to importers and retailers boosting inventories ahead of tariffs on Chinese-made goods and potential labor disputes.  

The surge in container volumes is unlikely to immediately impact industrial vacancy rates in the market. Having learned lessons from the supply chain chaos in 2021 and 2022, most logistics firms and importers now operate with excess capacity in key markets like those in Southern California. However, the region’s long-term outlook remains strong, according to our industrial property outlook, and the supply boom has ended, with the Inland Empire’s construction pipeline comprising just 1.1% of its stock, Los Angeles’s 0.8% and Orange County’s 0.4%.  

Southern California’s normalization could negatively impact three markets — Phoenix, Las Vegas and Salt Lake City — connected to the ports by rail and have served as a relief valve from the sky-high rent growth of the past few years. 

Rents and Occupancy

Premiums for New Leases Remain Elevated 

National in-place rents for industrial space averaged $8.15 per square foot in July, an increase of 11 cents from June and up 7.3% over the past 12 months, our U.S. industrial market report shows. 

In-place rents saw the highest gains in Southern California, Miami and New Jersey. Among markets not adjacent to a seaport, rents grew the fastest in Phoenix (up 8.4% year-over-year), Nashville (8.3%) and Atlanta (8.3%). The slowest rental growth was recorded in Kansas City (up 2.7% year-over-year), St. Louis (3.2%), Detroit (3.2%), Indianapolis (3.6%) and Houston (3.6%).  

The national vacancy rate was 6.4% in July, up 30 basis points from the previous month. Vacancies have been ticking upward recently due to a historic level of new supply delivered over the last three years.  

Average Rent by Metro 

The average rate for new leases signed in the past 12 months was $10.54 per square foot, $2.39 more than the average for all leases. While industrial vacancy rates have increased due to the impact of new supply, the high-quality, modern spaces being delivered command higher rental rates than existing stock. Tenants desire new, high-tech spaces that accommodate robotics and automation. Our industrial market outlook anticipates many owners to consider upgrading older, vacant space to attract tenants. 

The largest spread between in-place rents and new leases was in Miami, where a lease signed over the last 12 months cost $5.76 more per square foot than the market average rate for all leases. Other markets with large premiums paid for new leases were Charlotte ($3.94 more per square foot), Dallas ($3.57), Los Angeles ($3.55), Nashville ($3.51), Phoenix ($3.39) and the Inland Empire ($3.21).

Supply

New Deliveries Slowdown Persists 

Across the U.S., 379 million square feet of industrial space was under construction as of July, representing 1.9% of stock, according to our U.S. industrial market report. 

After delivering more than 1.1 billion square feet of new space between 2022 and 2023, increasing inventory by 5.8%, the rapid pace of new deliveries has begun to slow in 2024. With 229.3 million square feet coming to market during the first seven months of the year, the slowdown is just beginning. Construction starts, which eclipsed 500 million square feet in both 2021 and 2022, slowed to 357 million square feet last year and have reached just 127.2 million square feet year-to-date through July. 

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

Kansas City is a logistic hub thanks to its central location and the availability of cheap, abundant land. Many projects in the market are designated for logistics or distribution, including new sites and expansions to existing parks. However, manufacturing also plays a significant role in Kansas City. Key industrial projects in the region include Panasonic’s $4 billion electric vehicle battery plant in De Soto and Coca-Cola's bottling plant in Olathe. 

Transactions

Industrial Sale Prices Maintain a Steady Climb 

Industrial sales totaled $30.7 billion through the first seven months of the year, with properties trading at an average of $135 per square foot, according to our industrial property market report. Despite a slowdown in total sales volume, the average sale price of an industrial asset continues to grow. Our industrial market outlook suggests that once the cost of capital begins to decrease, activity will pick up without a drop in average sale prices. 

2024 Year-to-Date Sales (Millions) 

Phoenix has been one of the most active markets for industrial transactions in 2024, with $1.3 billion in sales through July and properties trading at an average of $155 per square foot. Most of the sales activity this year has been concentrated in logistics and shipping, particularly on the west side of the metro. The Peoria and Phoenix-West submarkets account for $641 million in sales, nearly half of the market’s total sales volume.  

Western Markets

Phoenix Remains a Key Market for Industrial Sales 

Western markets continued to lead the nation in industrial sales. The top three markets with the highest average sale prices are all located in California, led by the Bay Area ($518 per square foot), Orange County ($322) and Los Angeles ($307). The Bay Area stands out with a significant surge in average sale prices from the year-ago's $344 per square foot. The market also led the nation in sales volume, with investors closing $2.5 billion in industrial deals year through July. 

Year-To-Date Sale Price Per Square Foot 

For the first time in years, Southern California sees a cooldown due to decreasing demand and record levels of new supply, reflected in slower rental growth and rising industrial vacancy rates. Los Angeles recorded the most notable month-over-month surge in vacant space with a 190-basis point rise. The Inland Empire followed, with a 90-basis point increase, while Orange County’s vacancy rate rose just 20 basis points to 5.1%. 

Portland remained the tightest industrial market, with a vacancy rate of 4.1%. Central Valley was the only Western market to record asking rents below the national average of $8.15 per square foot, with an average of only $6.26 per square foot. However, the market had a lease spread of $2.91 per square foot, outpacing markets such as the Bay Area ($2.63), Orange County ($2.11) and Seattle ($1.40). 

West Regional Highlights 

Phoenix stands out as one of the most active markets for industrial sales in 2024, with investors closing $1.3 billion in industrial deals through July at an average of $155 per square foot. This year saw the Peoria and Phoenix-West submarkets’ transaction volume account for nearly half of the market’s total, with $641 million in sales.  

BlackRock recently acquired Building B at The Cubes at Glendale, a 1.2 million square foot facility, for $128.1 million. The building, fully leased to Amazon, is conveniently located near Northern Parkway, Loop 303 and Interstate 10. Phoenix’s growing stature as a logistics hub also helped spur sales. Notable deals include Packaging Corp. of America’s $74 million purchase of a 364,700-square-foot facility in Waddell. Packaging Corp. is one of the largest producers of containerboard and corrugated products in the country.   

Phoenix also remained the top market for industrial development in the U.S., with nearly 37 million square feet under construction as of July, equal to 9.2% of its existing stock. This is more than double Dallas-Fort Worth's pipeline (16.3 million square feet), the second-most active market nationally on a square footage basis. 

Midwestern Markets

Manufacturing Drives Kansas City’s Pipeline 

Kansas City defies the national downward trend in construction activity, with its pipeline growing from 7.8 million square feet one year ago to nearly 11.8 million as of July. This accounts for 4% of existing stock, representing the second-largest pipeline nationally on a percentage-of-stock basis, surpassed only by Phoenix. Its strategic central location and the availability of inexpensive, abundant land make it an ideal spot for industrial development. The projects in this area consist of many logistics or distribution centers, but there’s a big focus on manufacturing facilities. 

Panasonic is building a $4 billion electric vehicle battery plant in De Soto, Kansas, and is on track to begin production next year. The first phase of a new, state-of-the-art Coca-Cola bottling plant in Olathe, Kansas, from Heartland Coca-Cola Bottling Company, is also underway.  

With construction activity in the Midwestern industrial powerhouse maintaining a steady pace, Kansas City is set to expand its industrial footprint by 16.1% in the future considering planned projects as well. 

Chicago has seen a revival in industrial deals, with total sales volume reaching $1.5 billion in July from $983 million last year, making it the regional leader in industrial transactions and placing the market among the top four nationwide. Regarding sale prices, Chicago sits below the national average of $135 per square foot, with properties trading at an average of $98 per square foot. Regionally, the market was surpassed only by Indianapolis, where industrial assets traded for an average sale price of $99 per square foot.  

Midwest Regional Highlights 

At the other end of the spectrum, Kansas City and Cleveland had the lowest sale prices nationwide, with properties trading at an average of $49 per square foot in both markets. 

Continuing the trends observed in previous months, all Midwestern markets recorded in-place rents below the national average of $8.15 per square foot. Detroit and the Twin Cities remained the regional leaders in asking rents: Detroit led with $7.01 per square foot, up 3.2% year-over-year. The Twin Cities closely followed with $6.99 per square foot, a 5.1% increase over year-ago figures. 

While new leases signed over the past month in Cincinnati yielded the most notable lease premiums in the region at $2.27 per square foot, new leases were the priciest in Detroit ($9.01 per square foot). 

Midwestern markets remained among the most in-demand for industrial space, with each recording vacancy rates below the 6.4% national average. Indianapolis came the closest, with 6.3% available space as of July, up 130 basis points month-over-month. Columbus, with a 3.9% vacancy rate, lost its position as the second-tightest industrial market nationwide to Charlotte (3.7%). 

Southern Markets

Leading Southern Markets See Widest Lease Spreads 

Miami remained the undeniable regional leader in industrial rents, with $11.65 per square foot in-place rates, up 9.7% year-over-year. Baltimore, the second-most expensive market in the region, was also the only other one to outperform the national figure, with an average of $8.22 per square foot, equal to a 7.6% increase from over a year ago.  

The Southern markets dominated the nation in terms of lease spreads. Miami saw the widest lease spreads nationwide, with new leases here inked at an average of $17.41 per square foot over the last 12 months, bringing lease spreads to $5.76 per square foot. Charlotte followed, with tenants paying $3.94 more per square foot for new leases, while Dallas-Fort Worth followed with a $3.57 per square foot lease spread.  

Charlotte became the second-tightest metro in terms of occupancy among the top 30 markets, with 3.7% of its space available for lease in July. Miami (4.6%), Nashville (4.8%) and Atlanta (5.8%) were the only other Southern markets to record vacancy rates below the national average. 

South Regional Highlights 

Industrial sales were on the rise in the South during the past month. The regional leader in sales volume, Dallas-Fort Worth, reached $2.4 billion in transactions in July, while Houston surpassed $1.2 billion. Dallas-Fort Worth also led the region in sale prices, with properties trading at an average of $146 per square foot. Although among the regional leaders in industrial sale prices, Nashville’s average sale prices fell to $128 per square foot, a sharp decrease from the month-ago figure of $153 per square foot and below the July national average 

Memphis stood out as one of the Southern markets to see an uptick in construction activity, with its pipeline growing from 2.9 million square feet in July 2023 to over 10 million square feet underway as of last month. The market’s increasing industrial development is mainly driven by the growing demand for industrial space due to the rise in e-commerce and the restoring of manufacturing operations. A notable project under construction in Memphis is Ford’s BlueOval City, an electric vehicle battery manufacturing center slated to start production in 2027. 

Northeastern Markets

New Jersey Leads the Region in Industrial Rents and Sales 

In the Northeast, nearly every market tracked by our database posted listing rates above the national average of $8.15 per square foot. New Jersey continued to lead the region with $10.86 per square foot as of July. Philadelphia was the only exception, although not far behind the national average, with $8.00 per square foot.  

New Jersey was also in the lead in rent growth, with asking rents rising 9% year-over-year through July. The most considerable lease spreads in the region were also recorded in New Jersey and in Bridgeport, with tenants paying $3.04 per square foot more for new leases signed over the past 12 months. 

Consistent with previous trends, New Jersey logged the largest sales volume across leading Northeastern markets, with transactions totaling nearly $1.2 billion. A notable deal in July was the $31 million purchase of a 105,000-square-foot industrial property in Moonachie by Dora’s Naturals, a natural and organic perishable products distributor. The market also claimed the region’s highest sale prices and the fourth highest nationally, with properties trading at an average of $237 per square foot. 

Northeast Regional Highlights 

When it comes to vacancy rates, Bridgeport kept its position as the national leader in industrial occupancy, with 3.5% available space as of July. Although posting the highest vacancy rate across the U.S. over the past months, Boston’s vacancy saw a slight decline of 30 basis points to 8.5%.  

Despite a recent increase in vacant space in Philadelphia (100 basis points year-over-year), construction activity in the market remains strong, with more than 9.6 million square feet of industrial space underway (2.1% of its stock). A notable project to break ground in July was DH Property Holdings’ PhilaPort Logistics Center. The 282,250-square-foot Class A warehouse and distribution center is expected to be delivered by Q3 2025. 

Economic Indicators

Warehouse Employment Recovery Continues 

Employment in the Warehousing and Storage Sector of the economy increased by 10,700 workers in July, according to the Bureau of Labor Statistics (BLS). Despite four straight months of job gains, the sector is still down 0.5% year-over-year in the month.  

Warehousing and Storage Employment 

The path of Warehousing and Storage employment mirrors that of Amazon, by far the largest employer in the sector. In the years leading up to the pandemic, employment was expanding rapidly, growing nearly 10% per year between 2017 and 2019. As COVID-19 spurred online spending, Amazon rapidly expanded its distribution footprint. At the same time, warehouse employment increased nearly 20% annually between April 2020 and May 2022. The sector began to slow at the same time Amazon was reported to be subleasing space and pausing new projects. Now, in 2024, as reports surface that the e-commerce giant has begun leasing space again, employment in the Warehousing and Storage sector is once again on the rise. 

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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.

Get access to over 13M commercial property records with regularly verified commercial data, including local market insights, recent transactions and loan details with CommercialEdge Research.   

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.   

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