E-commerce Adjusts in 2024, Positioned to Sustain Industrial Demand Growth  

Key Takeaways:

• Following a period of stagnation, the e-commerce sector resumed growth in Q2, reaching $291.6 billion in sales, up 6.7% year-over-year 
• National industrial in-place rents averaged $8.11 per square foot in August, down four cents from July but up 7.2% year-over-year 
• The national vacancy rate stood at 6.7%, up 30 basis points month-over-month 
• A total of 369.3 million square feet of industrial space were under construction nationwide 
• Industrial transactions totaled $36.9 billion through August, at an average sale price of $132 per square foot 
• Vacancy rates in the Bay Area and Orange County decreased by 40 basis points month-over-month following recent increases 
• Dallas-Fort Worth led the U.S. in sales volume, with $2.9 billion in transactions through August, overtaking the Bay Area for the first time in months 
• New Jersey surpassed Boston in vacant industrial space for the first time in years with an 8.1% vacancy rate, the fourth-highest nationwide 

Trends & Industry News

E-commerce Adjusts and Set to Grow Again 

The e-commerce boom experienced during the pandemic waned last year, leading to a softened demand for industrial space. Now, in 2024, this sector appears to have rebalanced and is growing at a steady pace, according to our latest U.S. industrial market report. 

The Census Bureau reported e-commerce sales of $291.6 billion in the second quarter, marking a 1.3% increase over the first quarter and a 6.7% year-over-year growth. E-commerce’s share of core retail sales (excluding motor vehicles, their parts and gasoline) had stagnated during most of 2021 and 2022. However, it has been on the upswing for six consecutive quarters, reaching 18.8% in the second quarter, the highest level since the peak of pandemic-related shutdowns.  

The Warehouse and Storage sector of the labor market is also experiencing growth, according to the Bureau of Labor Statistics. A total of 24,900 jobs in the sector have been added year-to-date through August. While these are modest gains for a sector employing nearly two million workers, they signal improvement in a sector that shrank by 8.5% between May 2022 and December 2023.  

Warehouse and Storage Employment 

The trends in warehouse employment, which exploded between 2020 and mid-2022, mirror those of Amazon. Starting mid-2022, the e-commerce giant began pausing or canceling projects and listing millions of square feet for sublease. Given the company’s size, any moves it makes have substantial ripple effects. While Amazon never engaged in a large-scale pullback, its actions were enough to contribute to a cooldown in the entire industrial sector. In 2024, it has been reported that Amazon is increasing its leasing activity. 

While online sales growth has normalized, the industrial real estate sector continues to grapple with the impact of a massive supply response. More than 1.1 billion square feet (5.7% of stock) were completed between 2022 and 2023 alone. The nature of e-commerce fulfillment, however, will help absorb some of this supply. Estimates suggest e-commerce requires about three times as much industrial space as traditional retail sales to process orders and returns efficiently. 

Vacancy rates are ticking up, and new lease rates are dipping from their highs as the absorption of record-setting deliveries occurs. However, e-commerce conditions rebounding in Q2 reinforce the belief that the segment will be a primary driver of industrial demand in both the near and long term.

Peter Kolaczynski, Director, CommercialEdge 

E-commerce will remain one of the primary drivers of industrial real estate in both the near and long term, industrial property outlooks indicate. In addition to e-commerce firms’ growth, existing big-box retailers continue to push into the sector. Walmart, in particular, has been opening numerous distribution centers across the country in an effort to catch up with Amazon’s massive head start in the online shopping space. 

Rents and Occupancy

New Lease Rates Show Signs of Moderation 

National in-place rents for industrial space averaged $8.11 per square foot in August, down four cents from July but up 7.2% year-over-year, our latest U.S. industrial market report shows. 

In-place rents have increased the most along the coasts, with the largest gains over the last 12 months found in the Inland Empire (12.1%), Miami (10.6%), Los Angeles (10.1%), New Jersey (9.0%) and Orange County (8.3%). While the supply boom has led to higher vacancies and moderated advertised rents, leases signed before the pandemic will continue to expire in the coming years. As tenants renew leases or move into new spaces, in-place rents are expected to keep climbing, according to industrial property outlooks. 

The national industrial vacancy rate was 6.7% in August, up 30 basis points from the previous month. The massive wave of new supply delivered over the last few years continues to significantly impact the national vacancy rate, which hovered near 4% just two years ago.  

Average Rent by Metro 

In August, the average rate for new leases signed in the past 12 months was $10.56 per square foot, $2.45 more than the average for all leases. While the spread between in-place rents and new leases remains wide, there is a slowdown in the growth of new leases and even decreases in new lease rates in some markets.  

The national average rate for a new lease increased by 65 cents over the last year, while between August 2022 and August 2023, the rate grew by $1.83 per square foot. In the previous 12 months, the average rate of a new lease decreased in seven of the top 30 markets. The Inland Empire saw the biggest decline in the last 12 months, with new leases decreasing by $4.76 per square foot. Conversely, no markets saw the new lease rate decline between August 2022 and August 2023. 

Supply

Development Remains Historically High Despite Cooldown 

Nationally, 369.3 million square feet of industrial space was under construction as of August, representing 1.9% of stock, our U.S. industrial market report reveals. 

Industrial development may have cooled, but by historical standards, it remains elevated. Nearly 1.9 billion square feet started construction between 2020 and 2023, but this year, starts have fallen to 145.3 million. Despite the slowdown, 2024 is on track to finish roughly at 2019’s level of 195.8 million square feet of starts. Before the pandemic sent demand for industrial space into overdrive, 2019 was a high water mark in over a decade.  

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

While many markets have seen their pipelines shrink considerably in 2024, Phoenix is an exception. There are 36.8 million square feet underway, with 10.6 million square feet starting in 2024, the most of any market. Although Dallas-Fort Worth’s pipeline has downsized considerably from last year, it still ranks second nationally in square footage under development, with 16 million square feet in progress. Other markets with strong industrial construction activity include Philadelphia (12.4 million square feet), Kansas City (10.4 million), Chicago (10.3 million) and Memphis (10 million).  

Transactions

Sales Volume Poised to Exceed Last Year 

Nationwide, industrial sales totaled $36.9 billion through August, with properties trading at an average of $132 per square foot, according to our U.S. industrial market report. 

It’s beginning to look like 2024 will match or exceed 2023 in total sales volume. The Fed’s move to cut the benchmark interest rate will help lift capital markets. While there is a lag in collecting information about some transactions, 18 of the 120 markets covered in our database have already surpassed their sales volume for the entire past year. 

2024 Year-to-Date Sales (Millions) 

Despite modest rent growth and increasing vacancies, Denver is one of the markets that has surpassed its sales volume from last year. Through August, there were $818 million of industrial transactions in the market, compared to just $523 million for all of 2023. More than 40% of this year’s sales volume has been concentrated near the Denver International Airport, in the Northeast Denver and I-76 Corridor submarkets. Morgan Stanley recently paid $72.2 million for a site along the I-76 corridor occupied by Performance Food Group, one of the nation’s largest food distribution companies. Recently delivered by Scannell Properties, the site quickly fetched $273 per square foot. 

Western Markets

Southern California Sees Decrease in Vacancy Rates 

Western markets continue to outperform other regions and remain among the most attractive for industrial investments. The West claimed eight of the top 10 spots for the highest average sale prices nationwide. The Bay Area led the nation with an average of $483 per square foot, followed by Orange County with $320 per square foot and Los Angeles with $306 per square foot. Central Valley was the only Western market to record sales prices below the national average, with $130 per square foot.   

Sales activity in the Bay Area, long the national leader in sales volume and prices, showed signs of a slowdown in August. With $2.7 billion in industrial transactions year-to-date, the market lost its top spot in sales volume to Dallas-Fort Worth ($2.9 billion). While the Bay Area continued to lead the nation in sale prices, the market saw a $35-per-square-foot decrease compared to the previous month.   

Los Angeles experienced significant growth in industrial sales this month, surpassing the $2 billion mark and ranking third nationally in sales volume. A notable transaction in Southern California in August was the $42.6 million sale of two industrial properties located in Los Angeles and Orange County. Staley Point-Bain Capital JV acquired the properties totaling 232,000 square feet, which are fully leased to manufacturing tenants.   

Despite the cooldown experienced this year, marked by decreasing demand and an oversupply of industrial space, Southern California markets continued to dominate the nation in industrial rents. Orange County maintained its position as the most expensive industrial market in the U.S., with rents averaging $15.70 per square foot, followed closely by Los Angeles at $14.93 per square foot.    

West Regional Highlights 

Rent growth remained robust in the region, with rates increasing by 12.1% in the Inland Empire, 10.1% in Los Angeles and 8.3% in Orange County — the most considerable rent increases in the West. 

Although industrial vacancies have ticked up in Southern California over the past months, mostly due to new space coming online, both the Inland Empire and Orange County saw a decrease in industrial vacancy rates by 40 basis points from the previous month.   

Construction pipelines continued to shrink across most Western markets. Phoenix remained the most active market for industrial development nationwide, both on a percentage-of-stock and square-foot basis, with 36.8 million square feet underway, equal to 9.1% of existing stock.  

Warehouse and distribution make up more than half of Phoenix’s pipeline, while manufacturing represents 25%. Data centers comprise 18% of existing construction and represent a quarter of all square feet started in 2024. Stream Data Centers began developing four new data centers at its site in Goodyear, adding a total of 1.5 million square feet to the campus. 

Notable industrial developments in Phoenix include the completion of Phase 1 of the 1.5 million-square-foot Glendale Project in August. The Virgin Industrial Park project comprises five Class A buildings within Phoenix’s Loop 303 Corridor. Phase 1, totaling over 1 million square feet across three buildings, offers immediate availability.   

Midwestern Markets

In-Place Rents Still Below the National Average 

Midwest industrial hubs continued to record some of the weakest fundamentals in August. Indianapolis in-place rents rose 8% over year-ago figures, which marks the only Midwest rate above the national average. In contrast, Detroit (3.8%), St. Louis (2.3%) and Kansas City (1.9%) posted the lowest in-place rent increases among leading U.S. industrial markets.    

Indianapolis was also the only market in the region with premiums above the national average. New leases inked over the past 12 months cost $3.11 per square foot more than in-place rents. All Midwestern markets recorded in-place rents below the national average, continuing the trend observed through previous months, with the Twin Cities ($6.99 per square foot) and Detroit ($6.83 per square foot) coming closest to the national figure.   

Columbus, the leader in industrial occupancy across the past year, began experiencing an increase in industrial vacancy rates in June, reaching a 4.6% rate in August and becoming the third-tightest U.S. industrial market.   

Midwest Regional Highlights 

Despite Chicago’s industrial pipeline falling to half its year-ago volume, the market remains one of the most active in terms of industrial development. With 10.3 million square feet underway, the market ranks fifth nationally on a square footage basis and second regionally after Kansas City.    

A noteworthy development recently breaking ground in Chicago was the Pulaski 55 Logistics Center in the Archer Heights neighborhood. The 147,500-square-foot facility, set for completion later this year in December, is strategically located with direct interstate access and proximity to downtown.    

Regarding industrial sales, Chicago led the Midwest with $1.81 billion in transactions during the first eight months of this year, ranking fourth nationally in sales volume. Properties traded at an average of $98 per square foot, the highest in the region but still well below the national average. Conversely, Cleveland ($49 per square foot) and Kansas City ($48 per square foot) recorded the lowest average sale prices nationwide.   

Southern Markets

Dallas-Fort Worth Leads the Nation in Sales Volume 

Dallas-Fort Worth maintains its position as a key market for industrial development and investment in the U.S. due to its proximity to national and international trade routes and extensive transportation infrastructure. The Metroplex leads the South in development, second nationally only to Phoenix. However, the slowdown has deeply impacted development activity in the market, with its pipeline contracting from nearly 52 million square feet one year ago to 16 million square feet this August.   

On the other hand, industrial sales activity continues an upward trajectory in Dallas-Fort Worth. With transaction volume reaching $2.9 billion through August, the market became the national leader in industrial sales, surpassing the Bay Area for the first time in months. While properties in the Metroplex traded at $138 per square foot, making it the only Southern market with sales prices above the national average, Dallas-Fort Worth average prices were significantly lower than those in Western markets.    

A significant transaction in the market was the acquisition of a Class A Logistics Campus, the first phase of McKinney National Business Park, by a fund sponsored by CBRE. The 481,000-square-foot development, which came online two years ago, was fully leased at the time of the sale.   

South Regional Highlights 

Despite booming sales and construction activity, Dallas-Fort Worth has yet to experience double-digit rent growth, mainly due to increased supply. Over the past month, in-place rates in the market rose by 7.6% to $6.09 per square foot, the third-lowest rate in the South. However, new leases signed over the past year averaged $9.3 per square foot, $3.21 more than in-place rents, the third-widest lease spread in the region.    

Miami continued to lead the South in asking rates and rental growth with $11.87 per square foot and a 10.6% year-over-year increase, second only to the Inland Empire nationally. The market also led the nation in lease spreads, with new leases inked over the last 12 months averaging $17.53 per square foot, $5.66 more than in-place rents.   

The only other Southern market with in-place rents above the national average was Baltimore, at $8.21 per square foot. Conversely, Memphis recorded the lowest in-place rents among top U.S. industrial markets, at just $3.97 per square foot in August. In terms of occupancy, Charlotte was the tightest market nationally, with a 4% vacancy rate.   

Northeastern Markets

New Jersey Overtakes Boston in Industrial Vacancy 

Despite the national trend, industrial construction in Boston has shown resilience, with its current 2.2 million-square-foot pipeline nearly matching the 2.5 million square feet underway a year ago. Ongoing projects account for 0.9% of total stock, while considering planned projects as well, Boston's industrial inventory is expected to increase by 2.8%.    

In-place rents in Boston stood at $10.77 per square foot, slightly below regional leader New Jersey’s $10.87 per square foot. Boston in-place rents increased by 7% year-over-year, while new leases signed over the past year averaged $13.95 per square foot, $3.18 more than in-place rents. New Jersey saw in-place rents rising 9% year-over-year, the fourth largest rental increase nationwide.   

After consistently being the national leader in industrial vacancies this year, Boston’s vacancy rate started to decrease, down from 8.7% in January to 7.7% in August. Meanwhile, New Jersey's vacancy rate jumped to 8.1% in August (4.8% in January), the highest rate in the region and the fourth-highest nationwide.    

Northeast Regional Highlights 

New Jersey remained the top Northeastern market in sales volume, with nearly $1.4 billion in industrial transactions through August. Along Western markets, New Jersey and Boston complete the list of the top 10 highest sale prices nationwide, with properties trading at an average of $235 per square foot in New Jersey and $152 per square foot in Boston.   

Philadelphia continued to have some of the more modest fundamentals among Northeastern markets. At $8.02 per square foot, it was the only market in the region with in-place rents below the national average. Premiums here were also the lowest in the Northeast, with new leases inked at $10.25 per square foot over the past year.   

However, Philadelphia remained a powerhouse for industrial development, boasting 12.4 million square feet in progress as of August. The market was also in the lead in industrial occupancy with a 5.4% vacancy rate, surpassed regionally only by Bridgeport with 4.2%.    

An important industrial project in Philadelphia is the Rockefeller Group’s first industrial project in the market — a redevelopment of a 50-acre site at 15000 Roosevelt Blvd. into a Class A logistics facility. The 657,000-square-foot project is set to open in the second half of 2025.   

Economic Indicators

E-Commerce Ticks Up in Second Quarter 

There were $291.6 billion in e-commerce sales in the second quarter of the year, according to the Census Bureau. This shows a $3.8 billion increase over the first quarter (1.3%) and a $18.3 billion surge from the second quarter of 2023 (6.7%).  

E-commerce sales represented 18.8% of core retail sales in Q2, increasing by 10 basis points in the quarter and 50 basis points year-over-year. E-commerce still has a long way to go before it reaches the pandemic-driven highs reached during the second quarter of 2020. However, continued growth in online sales will be welcome news for the e-commerce sector and the broader industrial market.  

E-Commerce Volume 

After the 2020 spike, e-commerce’s share fell for the first time on record, and many following quarters saw the share decrease or grow at a negligible rate. However, the second quarter of 2024 marks the sixth consecutive quarter of e-commerce’s share increasing. As interest rates begin to fall and businesses eye expansion once again, the steady growth of e-commerce sales should provide confidence that the sector has regained its footing. 

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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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