As soon as once more, CommercialEdge’s Nationwide Industrial Report for November 2023 confirms that the state of the nation’s industrial property market is wholesome. Rents continued to rise over year-ago figures in every of the 30 largest markets within the U.S. – particularly these alongside the coasts — despite the fact that vacancies have elevated barely. Rents per SF for brand spanking new leases signed rose much more dramatically.
One issue underlying the demand for industrial house is the fast improvement of the electrical automobile (EV) sector in lots of states. The demand comes not simply from EV producers themselves, but additionally from the a number of suppliers of components and elements concerned in assembling the automobiles and the batteries that propel them, the report famous.
“EV and battery manufacturing can even require in depth provider networks occupying thousands and thousands of sq. toes of business house. The interactions between supplies and components suppliers with the producers can even require extra logistics house,” the report stated. “Our industrial property market outlook predicts that the manufacturing of EVs, their batteries and the suppliers’ networks will drive industrial demand for the foreseeable future.”
Despite the fact that EV gross sales slowed within the second half of 2023 and a few automakers like Ford and GM have pulled again on their earlier EV manufacturing targets, CommercialEdge believes the way forward for the sector stays optimistic.
Typically, on a nation-wide foundation, in-place rents for industrial house averaged $7.55 per SF in October, 7.6% larger than for the earlier yr and 5% greater than in September 2023. New leases signed fared even higher, rising to a median of $10.28 in the course of the yr. The unfold was even wider for brand spanking new leases in coastal markets with entry to a transport port.
“For instance, within the Inland Empire, a brand new lease signed within the final 12 months price $18.49 per sq. foot, $9.32 extra per sq. foot than the market common [in the area],” the report discovered. Even that common, $9.17, was 15.2% greater than the earlier yr. Different metros in California like Orange County and Los Angeles additionally noticed 12.3% will increase in common lease over the yr. On the east coast, Miami rents rose 10.3% to $10.62, and Boston’s climbed 9% to $9.98.
As of October 2023, 512.5 million SF of business house was beneath building throughout the nation, including 2.7% to present stock. Greater than 1 / 4 of the brand new provide is positioned in simply 5 markets: Phoenix (47.3 MSF), Dallas-Fort Price (42.42 MSF), the Inland Empire (25.7 MSF), Chicago (17.98 MSF), and Houston (17.25 MSF), and 18 markets account for half the full new stock. Nevertheless, rising building prices, difficulties in acquiring financing, improvement pushbacks and a concern of doable oversupply may sluggish the pipeline, the report cautioned.
“Whereas heavy deliveries put some upward strain on industrial emptiness charges, which rose 70 foundation factors from 3.9% in January 2023 to 4.6% in October, lease progress remained wholesome throughout main markets within the U.S. Probably the most substantial lease will increase continued to be logged in coastal markets, with probably the most important recorded within the Inland Empire,” the report acknowledged.
However, gross sales of business property have dipped significantly within the yr thus far. Transactions slumped to $44.4 billion from $71.9 billion the earlier yr. Even so, common sale costs have risen by 6.8% nationally to $131 per SF. 9 markets reported over $1 billion in gross sales for the yr thus far: Inland Empire, Los Angeles, Dallas-Fort Price, the Bay Space, New Jersey, Houston, Phoenix, Chicago and Atlanta.
True to type, industrial markets within the West outperformed different areas each in common sale costs and gross sales quantity. The Bay Space recorded gross sales of $340 per SF, Los Angeles $314 per SF and Orange County $304 per SF. Phoenix, one of many nation’s most favored markets, nonetheless, noticed gross sales drop this yr; simply $1.94 billion traded arms in comparison with $10 billion in 2021 and 2022 mixed. However at 2.4% it retained the bottom emptiness fee within the West whereas asking rents grew and it remained probably the most lively improvement market with the equal of 12.7% of present inventory beneath building.
In distinction, industrial hubs within the Midwest continued to show a few of the weakest fundamentals within the nation in October. Asking rents fell under the nationwide common and simply $4.91 billion in gross sales have been reported within the yr thus far.
Within the South, Dallas-Fort Price noticed rents rise 6.8% however elevated provide stored rents from rising by double digits, in contrast to different booming markets. Baltimore, with the smallest improvement pipeline within the area, noticed rents rise 6.1% to $7.69 making it the second priciest market. And within the Northeast, New Jersey recorded the very best new lease common rents at $13.91 per SF and a emptiness fee of 5.3%. For the reason that begin of 2020, the area added 37.8 MSF of business house, or 6.7% of inventory. That has not too long ago slipped.
“After breaking floor on a mixed 25 MSF in 2021 and 2022, builders in New Jersey have began building on simply 4.1 MSF in 2023. This doubtless signifies a decline within the obtainable developable land for industrial belongings,” the report acknowledged. Common 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.
