Industrial Real Estate Transforms as AI and Automation Gain Traction   

Key Takeaways:

• National industrial in-place rents averaged $8.22 per square foot in October, up 6.8% year-over-year      
• Nationwide, 358.8 million square feet of industrial space was under construction, equal to 1.8% of stock 
• Industrial transactions totaled $49.2 billion through October, trading at an average of $129 per square foot   
• Orange County became the tightest industrial market in the West, while also tying Charlotte for the second place nationally at a 4.3% vacancy rate 
• In-place rents grew fastest in Miami, surging 11.0% year-over-year, one of the few times when a market outside Southern California leads the nation in rent growth 
• The highest new lease premiums nationwide were recorded in Miami ($5.25 per square foot), New Jersey ($3.92) and Bridgeport ($3.87) 

Trends & Industry News

High-Tech Space is the Future of Industrial 

Automation and artificial intelligence (AI) have started to become essential for industrial real estate tenants, who are increasingly seeking high-quality assets capable of meeting the demands of tomorrow. 

During the early pandemic, industrial occupiers expanded their footprints rapidly. Demand for space was soaring due to e-commerce’s boom and firms were looking to increase inventories after months of shortages. Today, as online sales growth and supply chains have stabilized, logistics firms and retailers are shifting their focus toward optimizing existing networks and ensuring their spaces meet automation and AI requirements. 

Access to power remains one of the biggest challenges for the industrial sector, driven by the energy-intensive nature of automation, AI, advanced manufacturing and data centers. To mitigate these issues, tenants will likely show increasing interest in solar and other sustainable energy sources in the coming years, particularly in high-temperature locations prone to brownouts. This is doubly true for advanced manufacturing and other facilities requiring climate control. 

The needs of tenants are shifting, and that is being met by developers and owners through what is provided at their properties. Additionally, depending on the property’s intended use, geographic location and access to power are driving factors in site selection.

Peter Kolaczynski, Director, CommercialEdge 

Amazon is set to begin testing attaching automated micro-fulfillment centers to Whole Foods, with the first such facility being built in Plymouth Meeting, Pennsylvania, a suburb of Philadelphia. If successful, the concept could expand to Whole Foods locations nationwide. Amazon’s acquisition of the grocery chain in 2017 was partly driven by its strategic site selection, which gave the e-commerce giant physical locations in densely populated, high-income areas. This move aligns with Amazon’s efforts to increase its omnichannel retail offerings, enabling it to better compete in the grocery sector and against Target and Walmart, both of which effectively operate micro-fulfillment centers at their stores. 

Manufacturers are also moving rapidly to bring automation and AI into industrial real estate to improve efficiency and precision in producing goods. While automation has been a mainstay in manufacturing, adopting machine learning and deep learning can potentially improve quality control, predictive maintenance and inventory management, among other applications. 

However, automation and AI are not a cure-all, requiring highly skilled human workers for operation and maintenance, as well as thorough contingency plans in case of system failures. Challenges such as the availability of labor, power and water could slow the rollout of facilities powered by these technologies. Nonetheless, over the long term, most firms will require facilities with the infrastructure to handle high-tech systems. 

Rents and Occupancy

New Lease Rates Show Cooling Demand in Southern California

National in-place rents for industrial space averaged $8.22 per square foot in October, an increase of six cents from September and up 6.8% over the past 12 months, our latest U.S. industrial market report reveals. 

In-place rents grew fastest in Miami, rising 11.0% year-over-year. Since 2022, over 15 million square feet of new, high-quality industrial space has been delivered in the market, driving up average rents as tenants sign expensive leases in these properties. Consequently, this month marks one of the few times in the past five years where a Southern California market did not lead in rent growth. Other Southern markets also continued to see strong growth, with in-place rents increasing 9.0% in Atlanta and 8.7% in Nashville over the past 12 months. 

The national industrial vacancy rate was 7.2% in October, up 20 basis points from September. After hovering near 4.0% for most of the last few years, the national vacancy rate has steadily increased throughout 2024. The combination of a surge in new supply and softening demand has pushed vacancies upward across nearly every major market. 

Average Rent by Metro 

The average rate for new leases signed in the past 12 months was $10.30 per square foot, $2.08 more than the overall market average for in-place rents. Miami saw the widest spread, with tenants signing new leases over the past year paying $5.25 more per square foot compared to the market average. 

The spread between new and existing leases highlights the cooling demand in Southern California. Over the past year, new leases in the Inland Empire cost $3.17 more per square foot than in-place rents and $2.59 more per square foot in Los Angeles. While these figures remain above those in most markets, they are significantly lower than the spreads one year ago of $9.32 in the Inland Empire and $6.99 in Los Angeles. 

Supply

Development Slowdown Persists

Across the U.S., 358.8 million square feet of industrial space was under construction as of October, representing 1.8% of stock, our latest U.S. industrial market report shows. The industrial pipeline deceleration continued in the third quarter. Year-to-date industrial completions totaled 310.2 million square feet through October. However, only 69.3 million square feet was delivered in the third quarter, a sharp drop compared to 119.3 million in the first quarter and 101.5 million in the second. 

While a lag in collecting all data means the third-quarter total could increase, the slowdown reflects the decline in construction starts that began last year and has persisted throughout 2024. Between 2021 and 2022, over 1.1 billion square feet of industrial space broke ground. However, new starts then fell to 352.1 million square feet in 2023 and to just 184.4 million square feet year-to-date in 2024, as logged in our database. 

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

In Dallas-Fort Worth, construction starts totaled 13.3 million square feet year-to-date, a significant decline after averaging 42.6 million square feet a year between 2021 and 2023. Phoenix has seen a similar slowdown, with 10.7 million square feet of starts so far this year, compared to an average of 32.5 million square feet annually over the previous three years. The slowdown could be observed in the Inland Empire last year, when just 7 million square feet broke ground, following over 57 million square feet of starts between 2021 and 2022. However, the market has shown signs of recovery this year, with 9 million square feet of starts through October. 

Transactions

Growing Sales Activity in Leading Markets

Industrial sales totaled $49.2 billion year-to-date through the end of October, according to our U.S. industrial market report, with properties trading at an average of $129 per square foot. Through the first three quarters of 2024, total sales volume is down by $1.1 billion compared to the same period in 2023. However, a lag in collecting all sales data could lead to a slight increase in the third-quarter sales total. Yet, even if it that’s not the case, industrial property outlooks indicate that interest rate cuts are expected to bolster sales activity, meaning that 2024 is likely to outpace 2023 in sales volume by year-end.  

2024 Year-to-Date Sales (Millions) 

Dallas-Fort Worth has seen the most significant increase in transaction volume, with $1.1 billion more in industrial sales through the first three quarters of 2024 compared to the same period last year. Other markets to record significant upticks in sales volume through the third quarter include Chicago ($678.2 million), Denver ($622.9 million), the Bay Area ($601.5 million) and Miami ($584.2 million). 

Conversely, sales volume has declined most sharply in Southern California, a region that experienced red-hot demand in the early years of this decade but has since cooled. Los Angeles recorded a $2.2 billion drop in sales volume compared to the first three quarters of 2023, while the Inland Empire saw a $1.3 billion decline over the same period. 

Western Markets

Orange County Becomes the Tightest Market in the Region

Western markets continued to post the highest asking rents in the nation, with most seeing double-digit rates: Orange County ($15.95 per square foot), Los Angeles ($15.05), the Bay Area ($13.49), Seattle ($11.51) and the Inland Empire ($10.69). The Central Valley remained the only Western market with asking rents below the national average, at $6.43 per square foot.  

However, rent growth in the region has slowed within the past month. Asking rents in the Inland Empire have increased by 10.3% year-over-year, down from the 12.1% surge recorded in September. After leading the nation in industrial rental growth throughout this year, the Inland Empire was surpassed by Miami, where rents rose by 11% year-over-year as of October. Los Angeles also experienced a decline in rental growth, slipping from third to fifth nationally across top industrial markets, with an 8.8% year-over-year increase. 

Average rates for new leases signed over the past 12 months remained highest nationally in Orange County ($18.02 per square foot) and Los Angeles ($17.64 per square foot). However, new leases in Orange County cost only $2.07 more per square foot than average in-place rents, a spread below the national average. Meanwhile, Los Angeles posted a spread of $2.59 per square foot, well below the national leader, Miami, with $5.25 per square foot.  

West Regional Highlights  

Orange County became the tightest industrial market in the West and second nationally, along with Charlotte, with a 4.3% rate. Portland was next in the region in industrial occupancy, with a 5% vacancy rate, followed by the Central Valley (5.9%) and Phoenix (6.4%).  

Sale prices across the West remained the highest in the nation, but experienced slight declines in the month. Prices in the Bay Area averaged $465 per square foot in October, down $11 from September, while Orange County saw a $4 decrease to $315 per square foot, and Los Angeles’ declined by $5 to $292 per square foot. The Bay Area continued to lead Western markets in sales volume, with nearly $3 billion in industrial transactions through October.  

Denver stood out with the largest growth in sales activity among Western markets. After logging nearly $485 million in industrial sales throughout 2023, the market has already surpassed $1 billion in sales year-to-date by October 2024. The surge in industrial investment is closely tied to activity near Denver International Airport, a key driver for logistics and distribution in the region. At the end of September, Amazon strengthened its presence near Denver International Airport with a $91.1-million acquisition, purchasing a 652,000-square-foot warehouse at DIA Logistics Park, as well as an adjacent 13-acre vacant parcel.

Midwestern Markets

Construction Activity Still Strong in Midwestern Hubs

Midwestern markets continued to post in-place rents below the national average of $8.22 per square foot. The Twin Cities and Detroit came closest, with rents averaging $7.15 per square foot in both markets. However, in-place rents in these markets saw modest growth, increasing by 4.1% year-over-year in the Twin Cities and just 2.6% in Detroit, being among the slowest rises nationwide. New leases signed over the past year commanded the highest rates in the region, averaging $8.29 per square foot in Minneapolis-St. Paul and $8.08 in Detroit. Despite this, the premiums for new leases were $1.14 per square foot in the Twin Cities and $0.93 in Detroit, well below the $2.08 per square foot national average. 

Columbus led the Midwest in both rent growth and lease spreads. In-place rents here increased by 6.4% year-over-year to $4.99 per square foot, while new leases signed in the past 12 months cost $1.73 per square foot more than in-place rents. Despite positive rent growth, the industrial vacancy rate in Columbus has climbed in the past month, rising to 6.6%. This uptick is likely tied to the market’s steady construction activity, as Columbus remains one of the few industrial hubs with an expanding pipeline. The market’s development pipeline grew from 7.5 million square feet one year ago to 8 million square feet as of October 2024. 

Columbus remained one of the most active markets for industrial investment in the Midwest. With sales figures reaching $794 million during the first 10 months of this year, it was surpassed only by Chicago ($2.6 billion) and the Twin Cities ($963 million) at a regional level. However, sale prices in Columbus continue to lag behind the national average, coming in at $79 per square foot.   

Midwest Regional Highlights 

Chicago was the only Midwestern market to reach an average sale price of $100 per square foot, still falling short of the $129-per-square-foot national average. The Midwest also recorded the three lowest sale prices among leading U.S. industrial markets, with Detroit and Cleveland averaging $53 per square foot and Kansas City at $40 per square foot. 

Regarding industrial vacancies, Detroit was the tightest market in the Midwest and fourth nationally, with a 4.4% vacancy rate.  Conversely, Indianapolis reached 9.1% in industrial vacancy, the highest rate in the region and fifth nationally. 

Kansas City, the Midwestern leader in industrial development throughout the past year, had 11.7 million square feet in progress, accounting for 4% of its total stock. At the same time, the market maintained one of the lowest vacancy rates nationwide at 5.6%. Including current and planned projects, Kansas City’s industrial footprint is set to grow by 15%. Another Midwestern market with robust industrial development activity is Detroit, where 7.7 million square feet were underway as of October — the third-largest pipeline in the region. 

Southern Markets

Miami Takes Top Spot Nationwide for Rent Growth

Rental rates across Southern markets were below the national average, with Miami as the only exception. With in-place rents averaging $12.07 per square foot, Miami ranked as the fourth-most expensive industrial market in the nation, only behind California hubs — Orange County ($15.95), Los Angeles ($15.05) and the Bay Area ($13.49). Miami also claimed the top spot for rent growth nationwide, with asking rents rising 11% year-over-year. This marks a rare instance in the past five years where a market outside Southern California leads in rent growth.  

Southern markets led the nation in industrial lease spreads, with most markets exceeding the national average. Miami posted the widest lease spread among leading U.S. markets, with new leases inked over the past 12 months averaging $5.25 more per square foot than in-place rents. Charlotte was next in the region, with a spread of $3.63 per square foot, followed by Nashville ($3.10), Atlanta ($2.91) and Dallas-Fort Worth ($2.62). These markets also dominated the South in rental growth, with in-place rents up 9% year-over-year in Atlanta, 8.7% in Nashville and 8.1% in Dallas-Fort Worth. 

South Regional Highlights 

At the other end of the spectrum, Memphis posted the slowest rent growth among Southern markets, with in-place rents increasing by 4.5% year-over-year. The market also recorded the lowest in-place rates among leading U.S. industrial hubs, at $3.98 per square foot. Sale prices in Memphis were the lowest in the region and fourth-lowest nationally, averaging $54 per square foot. Despite these weaker fundamentals, Memphis remained one the most active markets for industrial development in the U.S., ranking sixth nationwide with 10.5 million square feet underway as of October. 

Charlotte kept its position as the tightest market in the South, with a vacancy rate of 4.3%, followed by Nashville with 4.9%. In contrast, several Southern markets reported industrial vacancy rates well above the national average, including Baltimore (8.7%), Miami (8.5%) and Dallas-Fort Worth (8.3%).  

Despite high vacancies, Dallas-Fort Worth maintained its lead in sales volume among U.S. industrial markets. The Metroplex logged nearly $3.8 billion in industrial sales through October. However, sale prices in Dallas continued to trail the national average, at $113 per square foot. Nashville ($132 per square foot) and Baltimore ($130 per square foot) were the only Southern markets where sale prices exceeded the national average.  

Northeastern Markets

Lease Premiums Among the Highest Nationwide in New Jersey

Philadelphia continued to be the most active market for industrial development in the Northeast, with 12.7 million square feet under construction as of October, up from 11 million square feet a year ago. Sales activity in the market also surged, with $981 in industrial transactions recorded through October, likely to exceed the total of $1.1 billion for all of 2023. Properties in Philadelphia traded at an average of $126 per square foot in October, just slightly below the national average.   

One of the most notable recent industrial sales in Philadelphia was the $59 million acquisition of Yeadon Industrial Center. The 450,000-square-foot, Class C property, located at 6250 Baltimore Ave., was completed in 1955 but has undergone recent renovations. At the time of the sale, the property was 96% occupied. The facility features a 24-foot clear ceiling height, more than 80 loading docks, and a 125-foot truck court depth. 

Despite strong construction and sales activity, Philadelphia’s vacancy rate hovered at 6.6%, the second-lowest in the region, only behind Bridgeport’s 3.7%. However, Philadelphia remained the only Northeastern market with asking rents below the national average at $7.95 per square foot. New leases signed over the past 12 months averaged $10.43 per square foot, representing a $2.48 premium over in-place rents.  

Northeast Regional Highlights 

New Jersey remained the most expensive industrial market in the Northeast, with in-place rents averaging $11.33 per square foot, reflecting a 10.2% year-over-year surge — the third-highest nationally. New leases inked over the past 12 months in New Jersey averaged $15.25 per square foot, $3.92 more per square foot than in-place rents, also marking the second-highest lease spread in the country after Miami. Bridgeport closely followed with the third-highest spread in the nation at $3.87 per square foot. 

Sales volume in New Jersey reached $2 billion through October at an average price of $223 per square foot, the fifth-highest average sale price nationwide. Despite these strong fundamentals, the market’s vacancy rate stayed above the national average, at 7.8%. 

Boston kept its position as one of the priciest markets for industrial investment, with properties trading at an average of $158 per square foot. However, sales activity was slow, with only $512 million in industrial transactions recorded during the first 10 months of 2024. In-place rents in Boston averaged $10.92 per square foot, making it one of the most expensive markets in the U.S. However, rent growth was more subdued at 6.6% year-over-year. The lease premium in Boston averaged $2.54 per square foot, slightly above the national average of $2.08 per square foot. 

Economic Indicators

Warehouse Employment Slips Further

After seeing a modest recovery during the first half of the year, the Warehousing and Storage sector of the labor market has experienced three consecutive months of job losses, according to the Bureau of Labor Statistics. Following a peak of 1,942,000 workers in May of 2022, the sector posted losses in 17 of the next 18 months, shedding more than 175,000 workers (-9%) during that period. Earlier this year, the trend appeared to reverse, with six of the first seven months of 2024 showing job gains in the sector. However, that growth was weak, with only 16,900 jobs added through July. Between July and October, all of those gains had been wiped out, as more than 17,000 jobs were lost in the sector. 

Warehousing and Storage Employment

The decline in warehouse employment appears to be driven by a lack of workers. Surveys of logistics operators in recent years have consistently reported a high share of respondents dealing with labor shortages. These challenges could further accelerate the adoption of automation in warehouses as firms look to mitigate labor shortfalls. 

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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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