Reshoring Trends Shape Future Industrial Demand and Development Activity

Key Takeaways:

• National industrial in-place rents averaged $8.16 per square foot in September, up 7.1% year-over-year 
• Sunbelt markets saw the highest rent increases among inland areas, with year-over-year in-place rents rising by 8.4% in Nashville, 8.2% in Atlanta and 8.1% in Dallas-Fort Worth 
• Nationwide, 362.6 million square feet of industrial space was under construction, while 283.1 million square feet was completed through the end of September 
• Industrial transactions totaled $43.7 billion through the first three quarters of this year at an average of $130 per square foot 
• The Inland Empire tops the nation in rent growth, with in-place rents up by 12.1% year-over-year to $10.72 per square foot 
• Detroit becomes the tightest industrial market in the Midwest, with a 4.6% vacancy rate, surpassing Kansas City, this year’s previous regional leader in occupancy 
• Miami posted the highest premium for new leases nationwide, with leases inked over the past 12 months costing $5.65 per square foot more than average in-place rents 
• Philadelphia, the Northeastern leader in industrial development, saw its pipeline shrink from 16.1 million square feet to 12.7 million square feet year-over-year 

Trends & Industry News

Supply Chain Disruption Dodged Amid Labor Strike

East Coast ports avoided a potentially massive disruption earlier this month when dock workers and operators reached a tentative agreement that ended a labor strike after only a few days. Earlier this month, a tentative agreement between dock workers and operators ended a labor strike after only a few days, avoiding a potentially massive disruption to East Coast ports. Once finalized, this agreement will provide port workers with additional labor stability, industrial property outlooks indicate. Combined with shifts in U.S. trade, this deal should help prevent seaport bottlenecks from hamstringing the economy as they did in 2022. West Coast dock workers came to a six-year contract last year after months of negotiations. This is welcome news for supply chains, as the three-day strike at East Coast ports caused weeks of backlogs. 

The reshoring and nearshoring push in manufacturing gained momentum in earnest this decade and has already begun to alter U.S. trade dynamics. Production relocations to the U.S. and its North American trading partners are driven by a combination of tariffs imposed on Chinese goods, tax incentives favoring domestic manufacturing and the need for a response to supply chain weaknesses exposed by the pandemic. In 2023, Mexico surpassed China as the U.S.’s top source of imports, with the gap between the two countries widening in 2024 year-to-date. Canada ranks third, close behind China. 

The supply landscape in industrial port markets could shift significantly in the coming years. In densely populated Northeastern markets like New Jersey, concerns are growing that available land for industrial properties is dwindling. While land scarcity may be less pressing in Southern California, a recent bill passed by the California legislature is expected to make industrial development somewhat more challenging in the state. 

Seaports will remain essential to global supply chains and will continue to drive demand for industrial space in nearby markets. Although the potential for bottlenecks still exists, supply chains are more resilient than they were four years ago. However, the possibility of black swan events, such as the Baltimore bridge collapse or the Suez Canal blockage, remains. These events are, by their very nature, impossible to predict. 

Rents and Occupancy

Strong Rent Growth in Sunbelt Markets

National in-place rents for industrial space averaged $8.16 per square foot in September, an increase of five cents from August and up 7.1% year-over-year, our latest U.S. industrial market report reveals. 

In-place rents grew fastest in the Inland Empire (12.1% increase over the last twelve months), Miami (11.2%), Los Angeles (9.5%) and New Jersey (9.1%). Among non-coastal markets, the Sunbelt saw the highest gains for in-place rents, with Nashville (8.4%), Atlanta (8.2%) and Dallas-Fort Worth (8.1%) experiencing strong growth.  

The benefits and incentives of reshoring or nearshoring have been magnified over the past few years, with significant growth in Sunbelt markets from Georgia to Arizona in support services for battery and semiconductor manufacturing plants.

Peter Kolaczynski, Director, CommercialEdge 

During this decade, high in-migration and job creation have driven demand for industrial space in the Sunbelt, positioning these markets as key regional logistics hubs. Further propelling this demand, many new electric vehicle and battery manufacturing plants are being set up in the region. Once operational, these facilities will require additional space for supplier networks, according to industrial property outlooks. 

The national industrial vacancy rate was 7.0% in September, up 30 basis points from the previous month. The new supply boom over the past few years has steadily pushed vacancies up.  

Average Rent by Metro 

The average rate for new leases signed in the past 12 months was $10.36 per square foot, $2.20 more than the average across all leases regardless of the signing date. Miami saw the highest premium for new leases, as the average lease signed here in the past year cost $5.65 more per square foot than the overall market average. Bridgeport ($4.38 more per square foot) and Boston ($3.70) also saw significant premiums for new signings. 

Among markets without port access, Sunbelt markets had the largest lease spreads — Phoenix ($3.70), Charlotte ($3.66), Nashville ($3.62) and Atlanta ($2.96) all had new lease rates significantly higher than the market’s overall average rent. 

Supply

New Bill to Impact California Development

Across the U.S., 362.6 million square feet of industrial space was under construction as of September, representing 1.8% of stock, our latest industrial property market report shows. Year-to-date industrial completions have totaled 283.1 million square feet through the end of September. While the total amount of stock delivered this year represents a significant drop from the past two years, it will still surpass any annual total recorded in our database before 2020.  

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

A bill recently signed into law in California introduces new requirements for industrial operators, changing how large warehouses are to be built and operated in the state. Assembly Bill 98 mandates a minimum distance between loading bays for new developments and expansions, along with new standards for buffers and parking. Additionally, the bill requires larger warehouses to file truck route plans that avoid residential areas and community spaces to local governments. 

While praised as a solid compromise by the California Chamber of Commerce and the California Retailers Association, this bill will likely impact the future amount of new supply in Southern California. Construction activity in the region has already slowed over the past year following a historic level of completions, with more than 110 million square feet added in the Inland Empire since 2020 (16.5% of stock). 

Transactions

Sales Activity Softens in Top Markets

Industrial sales totaled $43.7 billion through the first three quarters of 2024, according to our U.S. industrial market report, with properties trading at an average of $130 per square foot. Sale prices for industrial assets have shown an increase over the past year from an average of $122 per square foot by the end of Q3 2023.  

Sales activity in some top markets, however, experienced a cooldown. After ranking among the top four markets for sales volume for the last six years and leading the nation in 2023, sales in the Inland Empire have slipped slightly this year. In 2024, the market ranks ninth nationwide by total sales volume, while the average price has slid to $265 per square foot, marking an 8% decrease from the high mark of $289 per square foot in 2022. 

Year-To-Date Sale Price Per Square Foot  

Despite the slowdown, the Inland Empire has continued to see large-scale transactions. This year’s largest sale here was EQT Exter’s $197 million acquisition of an 817,750-square-foot distribution center at 13423 Santa Ana Avenue, in the Inland Empire’s Fontana submarket. Its location, at the intersection of Interstates 10, 15 and 215, helps drive strong demand for logistics and fulfillment centers. Fontana alone has accounted for $690.7 million in transactions, recording nearly half of the market’s total sales volume so far this year. Properties in Fontana traded at $331 per square foot, significantly above the market average.  

Western Markets

California Markets Still the Most Expensive U.S. Industrial Hubs

Western markets remained among the nation’s most expensive industrial hubs, setting a high bar for rent levels across the country. Orange County led with in-place rents averaging $15.73 per square foot, followed by Los Angeles at $14.98 per square foot and the Bay Area at $13.49 per square foot. 

Despite signs of a slowdown this year, Southern California markets continued to lead the U.S. in rent growth. The Inland Empire saw the highest surge among top industrial markets, with in-place rents climbing 12.1% year-over-year. Los Angeles followed, ranking third nationally, after Miami, with a 9.5% increase over the same period. 

Meanwhile, Phoenix recorded the widest lease spread in the region, with new contracts signed over the past 12 months costing $3.70 per square foot more than in-place rents. Los Angeles ($3.19) and the Inland Empire ($2.36) were the only other Western markets with lease spreads above the national average.  

Even with positive rent growth, oversupply and weakening demand continued to push vacancies up in California markets. Orange County’s vacancy rate rose by 60 basis points month-over-month to 5.3%, while the Inland Empire saw a 40-basis-point increase, reaching 7.3%. As a key U.S. industrial hub, the Inland Empire hosts logistics and distribution centers for major companies like Amazon, FedEx and Walmart. However, some of these companies are scaling back. Under Armour plans to close its 1.2 million-square-foot Rialto facility as part of cost-cutting and restructuring efforts. 

West Regional Highlights 

Western markets continued to be the most attractive to investors across the country’s leading markets. While trailing behind Dallas-Fort Worth’s $3.3 billion sales, the Bay Area still secured the second spot nationally in sales volume, with nearly $2.8 billion logged through September. Properties in the market traded at an average of $476 per square foot, the highest average sale price nationwide.  

Los Angeles ranked third nationally in both sales volume and prices, with $2.2 billion in industrial transactions and an average of $297 per square foot. Regarding sale prices, the Central Valley was the only Western market with prices below the national average, at $129 per square foot. 

Amid a national cooldown in development, Denver stands out as one of the few Western markets maintaining robust construction activity. Though its pipeline has decreased from 10.7 million square feet to 7.5 million square feet over the past year, it still boasts the second-largest pipeline in the region on a percentage-of-stock basis. Ongoing projects account for 2.7% of the market’s total stock, and also taking into account planned developments, the market’s inventory might grow by 5.8%. Denver’s strategic location, proximity to key distribution hubs and shipping routes, along with strong population growth, keep it a prime target for industrial developers.  

Midwestern Markets

Detroit Becomes the Tightest Industrial Market in the Region

As industrial construction slowed nationwide, some Midwestern markets have bucked the trend, with pipelines either expanding or remaining steady over the past 12 months, as shown in our U.S. industrial market report. With fewer geographic constraints than port markets, several key regional industrial hubs have been able to meet increasing demand with new supply. 

Kansas City led the Midwest in development on a percentage-of-stock basis, with its 10.7-million-square-foot pipeline accounting for 3.7% of the local footprint, a substantial increase from 7.9 million square feet a year ago. A recent project to break ground was a 291,000-square-foot cold storage facility outside Kansas City. The warehouse is set to open in Q3 2025, with most of its space expected to be leased by Flora Food Group. 

Meanwhile, Columbus and Detroit have maintained stable development levels compared to last year, with 8.6 million square feet and 7.2 million square feet underway as of September, respectively. Despite new deliveries, these markets continued to be among the tightest in the region. Detroit was on top with a 4.6% vacancy rate, surpassing Kansas City for the first time in months. Columbus followed, with 5.1% vacancy and Kansas City was next with 5.2%. 

Midwest Regional Highlights

Heavier development tempered rent growth in the region, with Kansas City seeing a modest 2.1% year-over-year increase, the smallest nationally. Detroit fared better, with rents rising 3.8%, while Columbus was the exception and recorded the highest rent growth in the Midwest at 7% year-over-year. 

At the other end of the spectrum, Indianapolis saw a significant slowdown in industrial development, with its pipeline shrinking from 8.4 million square feet to 2.3 million square feet over the past year. This reflects a normalization in construction activity after the post-pandemic supply boom, coupled with rising construction costs and interest rates. Despite this, vacancy upticks persist in Indianapolis, with 8.3% vacant industrial space, the highest rate in the Midwest. However, the market led the region in lease spreads, with new leases averaging $2.91 per square foot more than in-place rents. 

Despite the vacancy rate rising to 7.8% in September, Chicago remains a top market for investors, with $2.1 billion in industrial sales through September, ranking fifth nationally. However, industrial sale prices across the Midwest continued to trail the national average, with neither metro even exceeding the $100 per square foot mark. Indianapolis and Chicago came closest, with prices at $98 per square foot, while Cleveland ($49 per square foot) and Kansas City ($47 per square foot) posted the lowest sale prices among top U.S. industrial markets. 

Southern Markets

Despite Growing Sales Activity, Prices in Dallas Lag Behind the National Average

Miami remained the priciest industrial market in the region and fourth nationally, with in-place rents averaging $11.87 per square foot. Rents grew by 11.2% year-over-year here, making it one of only two markets nationwide, along with the Inland Empire, to see double-digit rent growth. New leases signed in the past year in Miami averaged $17.52 per square foot, a $5.65 premium over in-place rents — the highest lease spread among top U.S. markets. 

Baltimore was the only other Southern market with in-place rents above the national average, at $8.20 per square foot. Otherwise, rent growth in the region has remained stable, with Nashville leading at 8.4% year-over-year, reaching $6.31 per square foot. Atlanta followed with an 8.2% increase to $5.97 per square foot, while Dallas-Fort Worth saw rents rise by 8.1% to $6.11 per square foot. 

Dallas-Fort Worth surpassed $3 billion in sales, reaching $3.3 billion through September, the highest sales volume nationally. However, properties here traded at an average of $126 per square foot, slightly below the national average. A notable transaction in the Metroplex was the sale of a 1.1 million-square-foot logistics portfolio in the Alliance submarket. The two properties were acquired by alternative investment firm Stonepeak, which used a $57 million loan for the purchase. 

South Regional Highlights

Other Southern markets ranking in the top 10 nationwide for sales volume include Houston ($2.1 billion) and Atlanta ($1.7 billion). Regarding sale prices, Baltimore and Nashville claimed the top spots in the region, with properties trading at an average of $132 per square foot in both markets.  

Switching to construction activity, Memphis led the region in development on a percentage-of-stock basis, with properties under construction amounting to 3.4% of its inventory, totaling over 10 million square feet. Atlanta also saw significant growth, with its development pipeline nearly doubling from 4.6 million square feet a year ago to 8.2 million square feet, making it one of the few Southern markets with growing construction activity.  

Most Southern markets continued to see an uptick in industrial vacancy rates, reflecting the ongoing challenges in balancing supply and demand. Markets experiencing notable surges include Baltimore, where vacancies rose by 70 basis points month-over-month to 7.7%, as well as Atlanta and Nashville, which both saw a 30-basis-point increase to 6.1% and 5.1%, respectively. 

Northeastern Markets

Development Activity Slows in Northeastern Markets

The industrial construction slowdown has impacted the Northeast, reducing the pace of new development across all top markets in the region, as highlighted in our U.S. industrial market report. While leading the Northeast in industrial construction, Philadelphia saw its pipeline shrink from 16.1 million square feet to 12.7 million square feet over the past year. New Jersey’s pipeline decreased from 8.1 million square feet to 6.8 million square feet year-over-year, while Boston’s fell from 2.3 million square feet to 1.9 million square feet. 

New Jersey remained the top Northeastern market for industrial investment, with $1.7 billion in sales through September and properties trading at an average of $226 per square foot, the fifth-highest price nationally. Despite having the second-highest average sale price in the region at $156 per square foot, Boston recorded only $405 million in industrial transactions during the first nine months of the year. This is likely due to Boston’s constrained industrial space and limited new development, which restricts opportunities for large-scale transactions. 

In terms of in-place rents, New Jersey continued to lead the Northeast and ranked among the top 10 most expensive markets nationally. New Jersey’s in-place rents surged 9.1% year-over-year, reaching $10.98 per square foot, marking the fourth-highest rental growth among leading industrial markets. 

Northeast Regional Highlights

However, new leases inked in New Jersey over the past 12 months averaged just $3.61 per square foot more than in-place rents. The market also saw significant spikes in industrial vacancy rates over the past months, with the rate rising to 8.6% in September, surpassing Boston for the first time in years last month and ranking fourth nationally in industrial vacancy rate. 

Boston was close behind New Jersey in leasing rates, with in-place rents averaging $10.87 per square foot, reflecting a 7.2% year-over-year growth. Despite no longer leading the nation in industrial vacant space, Boston’s vacancy rate was still among the highest nationwide, at 8.4%. New leases signed over the past 12 months in Boston cost tenants $3.70 per square foot more, the third-highest lease spread nationally. 

Connecticut’s growing industrial market, Bridgeport, stood out as the Northeastern market with the highest lease premium. New leases signed over the past year cost $4.38 per square foot more than average rents, second nationally only to Miami’s $5.65 per square foot. Bridgeport also reclaimed its position as the tightest industrial market nationwide, with only 3.8% available space as of September. 

Economic Indicators

Producer Prices Stabilize

The Producer Price Index (PPI) remained unchanged in September from the previous month, with a 1.8% year-over-year increase, according to the Bureau of Labor Statistics. The Final Demand for Goods portion of the index decreased by 0.2% over the previous month and 1.1% year-over-year, while the Final Demand for Services was up 0.2% month-over-month and 3.1% yearly. The easing of increases in wholesale prices is another indicator of cooling inflation. While the PPI receives less attention than its consumer counterpart, it is a leading indicator for the CPI. 

Economic Indicators

The Federal Reserve took an aggressive approach with rate hikes in an attempt to curb inflation, and price increases have moved closer to target over the past year. Last month, the Fed cut rates by 50 basis points and signaled the possibility of further cuts. As rates begin to decline in the coming quarters, we expect industrial transaction activity to pick up. Stable prices and falling interest rates should also allow occupiers to consider expansions and new leases that were previously unfeasible. 

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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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