Source: globest
By: Philippa Maister
Date: November 28, 2023
Once again, CommercialEdge’s National Industrial Report for November 2023 confirms that the state of the nation’s industrial property market is healthy. Rents continued to rise over year-ago figures in each of the 30 largest markets in the U.S. – especially those along the coasts — even though vacancies have increased slightly. Rents per SF for new leases signed rose even more dramatically.
One factor underlying the demand for industrial space is the rapid development of the electric vehicle (EV) sector in many states. The demand comes not just from EV manufacturers themselves, but also from the multiple suppliers of parts and components involved in assembling the cars and the batteries that propel them, the report noted.
“EV and battery manufacturing will also require extensive supplier networks occupying millions of square feet of industrial space. The interactions between materials and parts providers with the manufacturers will also require additional logistics space,” the report said. “Our industrial property market outlook predicts that the production of EVs, their batteries and the suppliers’ networks will drive industrial demand for the foreseeable future.”
Even though EV sales slowed in the second half of 2023 and some automakers like Ford and GM have pulled back on their previous EV production goals, CommercialEdge believes the future of the sector remains positive.
Generally, on a nation-wide basis, in-place rents for industrial space averaged $7.55 per SF in October, 7.6% higher than for the previous year and 5% more than in September 2023. New leases signed fared even better, rising to an average of $10.28 during the year. The spread was even wider for new leases in coastal markets with access to a shipping port.
“For example, in the Inland Empire, a new lease signed in the last 12 months cost $18.49 per square foot, $9.32 more per square foot than the market average [in the area],” the report found. Even that average, $9.17, was 15.2% more than the previous year. Other metros in California like Orange County and Los Angeles also saw 12.3% increases in average rent over the year. On the east coast, Miami rents rose 10.3% to $10.62, and Boston’s climbed 9% to $9.98.
Nevertheless, sales of industrial property have dipped considerably in the year to date. Transactions slumped to $44.4 billion from $71.9 billion the previous year. Even so, average sale prices have risen by 6.8% nationally to $131 per SF. Nine markets reported over $1 billion in sales for the year to date: Inland Empire, Los Angeles, Dallas-Fort Worth, the Bay Area, New Jersey, Houston, Phoenix, Chicago and Atlanta.
True to form, industrial markets in the West outperformed other regions both in average sale prices and sales volume. The Bay Area recorded sales of $340 per SF, Los Angeles $314 per SF and Orange County $304 per SF. Phoenix, one of the nation’s most favored markets, however, saw sales drop this year; just $1.94 billion traded hands compared to $10 billion in 2021 and 2022 combined. But at 2.4% it retained the lowest vacancy rate in the West while asking rents grew and it remained the most active development market with the equivalent of 12.7% of existing stock under construction.
In contrast, industrial hubs in the Midwest continued to display some of the weakest fundamentals in the nation in October. Asking rents fell below the national average and just $4.91 billion in sales were reported in the year to date.
In the South, Dallas-Fort Worth saw rents rise 6.8% but increased supply kept rents from rising by double digits, unlike other booming markets. Baltimore, with the smallest development pipeline in the region, saw rents rise 6.1% to $7.69 making it the second priciest market. And in the Northeast, New Jersey recorded the highest new lease average rents at $13.91 per SF and a vacancy rate of 5.3%. Since the start of 2020, the region added 37.8 MSF of industrial space, or 6.7% of stock. That has recently slipped.
“After breaking ground on a combined 25 MSF in 2021 and 2022, developers in New Jersey have started construction on just 4.1 MSF in 2023. This likely indicates a decline in the available developable land for industrial assets,” the report stated. Average rents grew 8.7% year-over-year in October to $9.96 per SF. New leases signed added a $3.95 premium to $13.91 per SF.
