Where to Find Industrial Supply in 2024

New industrial supply is expected to slow next year and the year beyond in 2025, according to CommercialEdge. To date, 204.3 million square feet of industrial space are underway, but that’s down from 614.1 million square feet last year and from 586 million square feet in 2021. Several reasons account for the change, from lessening demand that is normalizing from higher levels in prior years and the double whammy of interest rate hikes and tougher lending standards, both of which make financial deals more expensive and harder to move forward. Speculative development also poses greater risks because of inflation affecting material and labor costs, and the overall economy continues to cause great concern.

Tenants are coping by calling on a host of different strategies. Many firms, the report said, have moved from just-in-time inventory management to just-in-case, which reduces exposure to supply delays. But this approach requires more warehouse space. Online sales require more logistics space than brick-and-mortar due to the need for larger distribution networks and decentralized ones for quicker delivery. “As development expectedly slows down, there will still be immediate bright spots in locales supporting these massive semiconductor and EV manufacturing projects,” said Peter Kolaczynski, CommercialEdge Senior Manager. “Based on the current slowdown coupled with future demand drivers, we’re projecting increased competition for space and the need for future deliveries 3-5 years out,” he said.

A lot of the demand for huge semiconductor and electric vehicle facilities are being built because of incentives from the government and geopolitical trends. Many supplier networks are clustered in places such as Phoenix, Austin and South Carolina. Nearshoring of manufacturing also on the rise will drive demand more with markets such as San Antonio and El Paso set to grow due to more trade with Mexico.

The top 15 markets account for more than half of all deliveries this year. Dallas-Fort Worth with 32.1 million square feet is the most active market for deliveries, almost double Phoenix in second place with 17.4 million. Houston comes in third place for most deliveries with 14.6 million square feet of industrial space added through the end of August. Most of this is in logistics parks.

Chicago led the Midwest in sales activity with investors closing $1.16 billion through August at an average sales price of $85 per square foot. The Twin Cities saw the next largest sales volume with its industrial deal totaling $605 million, closed at an average of $93 per square foot. Detroit followed with $553 million and $428 million in sales.

In the South, a leading industrial market was Nashville with the lowest vacancy rate in August at 2%, and Atlanta and Dallas-Fort Worth at 3.5% and 3.9%, respectively. Houston, however, posted the highest vacancy rate at 8.4% in that region and nationally. Miami remained the priciest industrial market. The South Florida market posted the widest lease spread with new leases signed at $15.17 per square foot over the past 12 months.

In the Northeast, Boston rents grew 10.4% to an average of $9.78 per square feet while the New Jersey market recorded a 9.3% growth year-over-year in August to $9.91 per square foot. Bridgeport, Conn., also saw rents increase. Considered by some to be under the radar, it offers proximity to New York and is located along the Northeast corridor for access to regional markets. Philadelphia was cited for being the most affordable.