Industrial Valuations Rise Amid Normalizing Demand and Muted Transaction Volume

Key Takeaways:

• National industrial in-place rents averaged $8.00 per square foot in May, up 7.5% year-over-year 
• The national vacancy rate stood at 5.6% in May, up 40 basis points month-over-month 
• Nationwide, 381.3 million square feet of industrial space was under construction 
• Industrial transactions totaled $19.7 billion through May, at an average sale price of $142 per square foot 
• The Inland Empire remained the leader in rent growth, with average rents rising 12.6% year-over-year in May 
• Chicago logged the largest sales volume in the Midwest, totaling $910 million 
• Houston saw the third-highest vacancy rate in the nation, with 8.0% available space as of May 
• Philadelphia led the Northeast in development, with 8.6 million square feet underway as of May 

Trends & Industry News

Valuations Increase Despite Normalization 

Industrial valuation increases are proving to be sticky. The average sale price of industrial assets has increased steadily throughout this decade and continues to grow this year, even as demand for space normalizes and transaction volume remains muted due to elevated interest rates.  

The national average sale price was $142 per square foot as of May 2024, an increase of 15.4% compared to last year and 71.2% higher than in 2019, our U.S. industrial market report reveals. The industrial boom that began in conjunction with the COVID-19 pandemic continues to reshape the commercial real estate sector. With office assets trading at $165 per square foot in 2024, industrial prices are closer to office on a per-square-foot basis than ever before, a situation that would have seemed impossible just five years ago.

Between 2019 and 2023, the average sale prices in three of the top 30 industrial markets in the U.S. more than doubled. Nashville’s prices soared by 186%, from $57 to $163 per square foot. Similarly, in the Inland Empire, prices jumped 107%, from $121 to $250 per square foot and Philadelphia saw a 103% increase, from $60 to $122 per square foot. 

Quarterly Transactions (Price Per Square Foot)

Other markets also saw eye-popping price increases in the last five years, including New Jersey (up 85%, from $117 to $216 per square foot), Charlotte (up 82%, from $51 to $93 per square foot), Dallas-Fort Worth (up 79%, from $72 to $129 per square foot) and the Bay Area (up 78%, from $173 to $308 per square foot). In early 2024, prices have slipped 10-20% from last year in some of those markets, including Nashville, the Inland Empire, Charlotte and Philadelphia. However, prices continued to increase in New Jersey, Dallas-Fort Worth and the Bay Area. 

Even as vacancy ticks up and deal volume remains down, transaction price per square foot is not budging. Investors continue to find value from the lease rate run-up of the past few years. 

Peter Kolaczynski, Director, CommercialEdge 

It is noteworthy that sale prices have persistently increased despite falling transaction volumes, the historic wave of new supply and higher capital costs. This rise is attributed to valuations catching up with the lease rate growth over the past three years. In May, the national average rate for all in-place leases was $8.00 per square foot, marking a 7.5% increase over year-ago figures. New leases signed in the last year averaged $10.25 per square foot and the premium paid for a new lease is significantly higher in most in-demand markets. 

We anticipate these price gains to persist, our industrial property outlook indicates. The historic wave of new supply that has sent industrial vacancy rates upward is petering out, with just 69.2 million square feet of construction starts this year so far. While demand has normalized in recent quarters, the long-term outlook remains positive due to the nearshoring and reshoring of manufacturing. 

Rents and Occupancy

Uptick in Vacancy Rates Continues 

National in-place rents for industrial space averaged $8.00 per square foot in May, an increase of four cents from April and up 7.5% year-over-year, our latest U.S. industrial market report shows. 

The Inland Empire had the highest industrial rent growth once again, with in-place rents increasing 12.6% over the last 12 months. It was followed by Los Angeles (11.6%), Miami (11.4%) and New Jersey (9.6%).  

Phoenix was the fastest-growing market not adjacent to a shipping port, with an 8.7% rent growth year-over-year. The metro has been a booming industrial market in recent years, driven mostly by its robust population growth and proximity to key ports. The market offers a compelling alternative for companies seeking a less crowded option than Southern California for their industrial spaces. 

Average Rent by Metro 

The national industrial vacancy rate was 5.6% in May, up 40 basis points from the previous month. Industrial vacancy rates have been ticking up for more than a year due to slowing demand and an unprecedented wave of new supply hitting the market.  

In May, the average rate for new leases signed in the past 12 months was $10.25 per square foot, $2.25 more than the average for all leases. Miami saw the highest premium for new leases, with tenants paying an average of $5.55 more per square foot than the market average when signing a new lease over the last 12 months. Other metros where tenants paid hefty premiums for new leases include Los Angeles ($4.71 per square foot), the Inland Empire ($3.56), Tampa ($3.39) and Nashville ($3.26). 

Supply

New Construction Starts Remain Slow 

Nationally, 381.3 million square feet of industrial space was under construction as of May, representing 1.9% of stock, our U.S. industrial market report reveals.  

The under-construction pipeline has continued to shrink as projects deliver and new starts become more sparse than at any point this decade. Since the beginning of this year, 177.8 million square feet of industrial space has been completed, while only 69.2 million square feet has broken ground.  

Phoenix continued to be the leader of the nation in industrial development, both in terms of square footage and on a percentage-of-stock basis. The market has 38.7 million square feet of industrial stock underway, accounting for 9.8% of its total inventory. However, this represents a nearly 34% decrease from the same period last year, when 58.4 million square feet was in progress. 

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

While most markets had their construction activity slowing down in the last year, Atlanta defies the trend, seeing a small uptick in the size of its pipeline. The market remains in demand due to its central location relative to the Southeast’s growing population and the major highways connecting the region. Although 5.5 million square feet of logistics and distribution centers is underway, Atlanta’s development is also driven by the 2 million square feet of manufacturing space under development.  

Transactions

Sale Prices Keep Rising Amid Market Shifts 

Nationwide, industrial sales totaled $19.7 billion through May, with properties trading at an average of $142 per square foot, according to our U.S. industrial market report. Despite an increased cost of capital and normalized demand, 17 of the top 30 markets covered in our report saw average sale prices increase this year.  

2024 Year-to-Date Sales (Millions) 

New Jersey saw the fifth biggest sales volume this year, with $753 million in transactions through May. Properties in the market traded at an average of $272 per foot in 2024, an increase of 26% over 2023. Investors have continued to target the New Jersey market due to its proximity to the Port of New York and New Jersey—the third busiest in the U.S.—and the population concentrated along the Northeastern Corridor.  

Western Markets

Phoenix Maintains Solid Rent Growth 

Industrial vacancies continue to increase due to the levels of new supply coming online, balancing the supply-demand gap. The most notable change was seen in Los Angeles, where the vacancy rate rose 140 basis points over month-ago figures, standing at 7.3%.   

Southern California remained the priciest among leading industrial U.S. markets, with the top in-place rents nationwide being recorded in Orange County ($15.49 per square foot) and Los Angeles ($14.57 per square foot). The Bay Area followed, recording the third largest in-place rent across the nation at $13.29 per square foot.  

Regarding lease spreads, the Inland Empire is no longer the regional leader, as Los Angeles posted the widest lease spreads across the western markets. New tenants in Los Angeles are paying $4.71 more per square foot than average in-place rents, with premiums inked at $19.28 per square foot, while the Inland Empire saw new leases signed at $13.75 per square foot, $3.56 above in-place rents. 

The Inland Empire kept its top position in industrial rent growth across leading U.S. markets, with a year-over-year increase of 12.6%. Next up, Los Angeles recorded an 11.6% surge in rents, outpacing Miami’s 11.4% year-over-year growth.

West Regional Highlights  

Phoenix emerges as the fastest-growing industrial market without direct shipping port access, boasting an 8.7% rent growth year-over-year. This surge is driven by several factors. Population growth in the market has been robust, increasing demand for industrial space. Moreover, located at a six-hour drive from the Ports of Los Angeles and Long Beach, the market has served as a distribution hub for many firms looking for an outlet valve from overcrowding in Southern California.  

The metro is also the hottest market for industrial development, leading the U.S. with 38.6 million square feet under construction as of May, making up 9.8% of its existing inventory, as highlighted in our industrial property market report. Data centers in the region have been booming, with firms like Meta and Google building facilities. These factors have led manufacturers to target the market as well. A notable project underway is TSMC's 3.8 million square feet semiconductor fabrication plant, which is set to be the largest industrial property in Greater Phoenix. 

The Bay Area led the nation in sales volume, with $2.2 billion in sales year-to-date. Next was Los Angeles, with investors closing $1.6 billion in industrial sales. Phoenix and the Inland Empire followed with investors trading $749 million and $709 million, respectively. The top three sale prices per square foot across the nation were all logged in the West, with the Bay Area coming in first at $582 per square foot, followed by Orange County’s $319 per square foot and Los Angeles’ $313 per square foot. 

Midwestern Markets

Columbus Stays the Tightest Industrial Market with 2.7% Vacant Space 

Midwestern metros kept the title of tightest industrial markets in the U.S., albeit with significantly slower rent growth compared to the rest of the nation. Columbus had the biggest occupancy rate among leading U.S. markets, with only 2.7% space available, followed by Kansas City, with 3.8% vacant space. Detroit and Kansas City had the second slowest rent growth nationwide, with rates increasing 3.6% year-over-year in both metros. St. Louis stands out by posting the slowest growth in rental rates across the nation, with a 3.4% year-over-year growth.   

The region continued to be one of the most affordable across the U.S., with all metros recording in-place rents below the national average of $8.00 per square foot. Detroit posted the highest rental rate in the region at $6.95 per square foot, while Indianapolis stood at the other side of the spectrum with $4.68 per square foot.  

Although having one of the lowest in-place rental rates, Indianapolis led the Midwest in lease premiums, with new leases signed over the past 12 months costing $2.57 more per square foot. 

Despite the slowdown in rental growth across the region, Chicago saw the largest leasing deal in the market year-to-date in May, with W.P. Carey inking a 1.6 million-square-foot industrial lease at 701 Central Avenue in University Park, III. 

Midwest Regional Highlights 

Kansas City continues to be a hotbed for industrial development, leading the Midwest both in terms of square footage and on a percentage-of-stock basis. As of May, the metro had 13.3 million square feet of space underway, comprising 4.6% of its current inventory. Considering planned industrial projects, Kansas City is set to expand its footprint by 16.9% in the near future, according to our industrial property outlook. Chicago closely follows with 10.8 million square feet of space under construction as of May, ranking fourth among leading U.S. industrial markets.  

Chicago also stands out in industrial transactions, recording the largest sales volume in the Midwest at $910 million logged through May. In terms of sales prices, the Twin Cities was the only midwestern market with an average sale price above $100 per square foot. Average sales prices here rested at $104 per square foot, well below the $142 national average. 

Southern Markets

Atlanta Sees Uptick in Construction Pipeline 

Construction activity follows the national trend in the South, with the regional leader Dallas Forth-Worth having only 17.3 million square feet under construction, accounting for 1.8% of its current stock. This represents a nearly 70% reduction compared to year-ago levels of 53.7 million square feet underway, a consequence of the industrial space demand normalization. 

Among southern markets, Atlanta stands out through its growing pipeline compared to year-ago figures despite the prevailing trend. While the increase from 9.28 million square feet in May last year to just over 10 million by May 2024 isn’t striking, the market remains sought-after. Its appeal lies in its central location relative to the Southeast’s growing population and the major highways that connect the region.  

Atlanta’s industrial landscape, primarily comprising logistics and distribution center projects, is diversifying with over 2.2 million square feet of manufacturing facilities underway. Notable projects include PepsiCo’s 260,000-square-foot expansion in Stone Mountain, as well as Renewal by Andersen’s 638,000-square-foot building at the Cubes at Locust Grove. Plus, the Intuitive Surgical Regional Headquarters, a 750,000-square-foot facility that will make robotic surgical equipment after the firm relocates its southeast operations from Durham.  

South Regional Highlights  

Nashville remained the tightest market in the South, with a 3.8% vacancy rate, followed by Charlotte with 4.1% and Miami with 4.5%, the latest industrial property market report shows. In contrast, Houston had 8.0% industrial space vacant as of May 2024, marking the third-highest vacancy rate across leading U.S. markets.   

Miami continued to lead the region in industrial rent growth with in-place rents at $11.43 per square foot, an 11.4% year-over-year increase, while Memphis recorded the lowest in-place rents nationwide at only $3.95 per square foot. Miami also led the South in lease premiums, with new leases inked over the past month costing $16.98 per square foot, $5.55 above in-place rents, having the widest lease spreads across the nation.   

So far, the Dallas-Forth Worth Metroplex has logged the largest sales volume in the region as well as the largest price per square foot, with investors spending 1.6 billion in transactions as of May at an average price of $152 per square foot. Nationally, the metro was overtaken in sales volume only by the Bay Area with $2.2 billion in industrial sales year-through-date. 

Northeastern Markets

Upward Sales Trend Continues in New Jersey 

The northeastern markets continued to see an uptick in vacancies, with Boston leading the region in available space at a 9.0% vacancy rate, the highest among the top 30 U.S. industrial markets. At the other end of the spectrum in the region, Bridgeport’s industrial market remains tight, with a vacancy rate of 4.0%.   

Despite rising industrial vacancy rates, the metros in this region remained among the priciest across the nation, with most of them recording in-place rents above the national average of $8.00 per square foot. New Jersey stayed the leader in the region, with in-place rents at $10.71 per square foot. Boston and Bridgeport were next, both standing at $10.58 per square foot, while Philadelphia was the only market below the national average with in-place rents at $7.76 per square foot as of May. Boston recorded the widest lease spreads in the region, as new leases averaged $13.36 per square foot, $2.78 more than in-place rents.   

Northeast Regional Highlights 

New Jersey continued to lead the Northeast in sales volume and price, with $753 million in closed industrial deals year-to-date through May. These transactions traded at an average of $272 per square foot, marking a 26% increase from 2023. So far this year, the metro ranks fifth in sales volume across the top 30 U.S. industrial markets, continuing to be a focal point for investors due to its proximity to the Port of New York and New Jersey and the dense population along the Northeastern Corridor.   

Since the start of 2022, 29 million square feet have delivered in the market, accounting for 5.0% of stock, pushing the vacancy rate to 5.7% in May. Despite the new space coming into the market, industrial rent growth remains strong, with in-place rents growing 9.6% in the last 12 months. Due to a lack of land available for industrial facilities, even sites targeted for redevelopment can fetch a healthy price. The Jersey City site where the New York Daily News was once printed was purchased by Goodman Group for $92 million, now standing to be repurposed into a last-mile delivery facility.  

Philadelphia stayed the leader in industrial development across the northeastern markets with 8.6 million square feet of space underway, comprising 1.9% of its current stock. This marks an over 50% pipeline reduction compared to the 18.3 million square feet of industrial space under construction in May 2023. 

Economic Indicators

E-Commerce Share of Retail Sales Grows in First Quarter  

In the first quarter of 2023, E-commerce sales totaled $289.2 billion, increasing 2.1% in the quarter and 8.6% year-over-year, according to the Census Bureau. E-commerce’s share of core retail sales increased from 18.3% to 18.8% over the quarter, the highest the share has been since Q2 2020. However, this large jump was due to core retail sales remaining virtually unchanged. 

E-Commerce Volume

As the e-commerce sector exploded during the early days of the pandemic, online retailers and logistics companies moved quickly to expand their operations and keep up with demand. However, from mid-2022, there was a pullback as it became clear that there was some over-expansion. In 2024, it appears that e-commerce is growing once again. The Warehouse and Storage sector of the labor market has slowly been adding workers after shrinking for six consecutive quarters. Amazon, who was listing millions of square feet for sublease in 2022 and 2023, is now reported to be signing new leases again. 

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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.   

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