Industrial Prices Continue Upward Trend Despite Challenges
The average industrial sale price across the country was up 15.4% in May.
Industrial prices are nearing those of prices in the office market, driven by an industrial boom that began with COVID-19 and a market that has remained strong despite normalizing demand and muted transaction volume due to elevated interest rates.
The average industrial sale price across the country was $142 per square foot in May, up 15.4% from last year and 71.2% from 2019, according to CommercialEdge’s National Industrial Report. Assets in the office market are trading at about $165 per square foot.
Three of the top 30 industrial markets – Nashville, the Inland Empire and Philadelphia – saw prices more than double between 2019 and 2023, the report found. Other strong markets for industrial pricing include New Jersey, Charlotte, Dallas/Fort Worth and the Bay Area.
“Even as vacancy ticks up and deal volume remains down, transaction price per square foot is not budging,” said CommercialEdge director Peter Kolaczynski. “Investors continue to find value for the lease rate run-up of the past few years.”
In May, the national average rate for all in-place leases was $8 per square foot, a 7.5% increase from last year, according to the report. The Inland Empire had the highest industrial rent growth once again, with in-place rents increasing 12.6% over the past 12 months. It was followed by Los Angeles (11.6%), Miami (11.4%) and New Jersey (9.6%). Phoenix was the fastest-growing market not adjacent to a shipping port, with an 8.7% rent growth year over year.
New leases signed in the past year averaged $10.25 per square foot and the premium paid for a new lease was significantly higher in most in-demand markets. CommercialEdge said it expects these price gains to persist as new supply slows to just 69.2 million square feet of construction this year and normalizing demand triggered by nearshoring and reshoring of manufacturing. Nationwide, 381.3 million square feet of industrial space was under construction.
While most markets had slower construction activity in the past year, Atlanta had a small uptick in the size of its pipeline, the report found. The market remains in demand due to its central location relative to the Southeast’s growing population and the major highways connecting the region.
The e-commerce sector, which initially drove demand for industrial space in the early days of the pandemic followed by a pullback due to over expansion in 2022, is now growing once again, the report said. The warehouse and storage sector of the labor market has been adding workers after shrinking for six quarters, and Amazon, which was subleasing space for the past 2 years, is reportedly signing new leases again, CommercialEdge said.