Industrial Construction Starts Fall In First Half of 2024

The U.S. industrial development pipeline has slowed in recent quarters, following two years of record deliveries, and is likely to continue to shrink in coming years, CommercialEdge said in its July 2024 National Industrial Market Report.

Through the first six months of 2024, 97.8 million square feet have been started, down from 147 million square feet a year ago, the report noted.

“This slowdown has been driven by normalizing demand from tenants, the record level of new supply recently delivered or set to be delivered, higher costs of construction loans and economic uncertainty,” CommercialEdge said.

Deliveries in the first half of 2024 reached 209 million square feet, up from 160 million square feet in the first half of 2023, underscoring the market’s capacity to bring projects to completion.

In 2023, industrial construction starts fell to 357.5 million square feet, compared to 1.1 billion square feet between 2021 and 2022.

“The size of the industrial supply pipeline has shrunk for six straight quarters as deliveries have outpaced starts,” CommercialEdge added.

The national industrial vacancy rate edged up to 6.1% in June 2024, from 5.6% a month earlier.

National industrial in-place rents rose 7.5% from a year earlier, to $8.04 per square foot.

Reshoring of Manufacturing

Over the long run, the reshoring of manufacturing to the U.S., including spending on semiconductor plants and other advanced manufacturing, will support the industrial real estate sector, CommercialEdge said.

Year-to-date, manufacturing has accounted for 16.1% of industrial starts, up from 13% in 2022 and 2023, and 7%-8% between 2018 and 2021.

CommercialEdge noted that Southern California maintained its place as the most in-demand region for industrial real estate, buoyed by the nation’s two busiest ports, Los Angeles and Long Beach, and the region’s large population, with Orange County as the “priciest industrial market” with average in-place rents of $15.69 per square foot in June.

“While the Inland Empire has seen a surge of new supply in recent years, Los Angeles and Orange County are very constrained by land availability,” the report said.

Meanwhile, the Midwest continued to see the slowest rent growth, with in-place rents rising 2.5% in Kansas City year-over-year, 3.4% in St. Louis, 3.6% in Detroit, and 4.0% in Chicago.

“Absent the supply constraints placed on port markets, new supply is responsive to increasing demand in the middle of the county,” CommercialEdge said. “This suppresses rent growth and prohibits owners from capturing the eye-popping rental growth rates seen along the coasts.”

The report also noted that Dallas-Fort Worth, while continuing to lead the South in industrial development, may be hitting the brakes “after a period of blistering supply growth” during which its stock of new industrial space expanded 13% over the last 10 quarters.

“While the boom seen in recent years will not be replicated, the market is poised to continue expanding in coming years due to immigration and the nearshoring of manufacturing,” CommercialEdge said. “Texas is the fastest-growing state in the nation, adding nearly half a million residents in 2023, driving demand for industrial space.”

“Dallas’ location makes it a hub for imported goods manufactured in Mexico,” the report’s authors added. “With more than 43 million square feet in the planning stages, it won’t be long before the pipeline begins to grow again.”