In recent years, the industrial real estate market has become a prominent player in the U.S. economy. This asset class, historically concentrated along key coastal ports, is now experiencing substantial growth in non-coastal markets. As the country’s supply chain evolves, the Sunbelt markets—regions like Nashville, Atlanta, and Dallas-Fort Worth—are rising to the forefront. This momentum is fueled by the combined forces of reshoring initiatives, a growing need for battery and semiconductor manufacturing plants, and an environment that’s more favorable for industrial development.
The Surge in In-Place Rents and Vacancy Rates
The average national in-place rent for industrial space hit $8.16 per square foot in September 2024, showing an impressive 7.1% increase year-over-year. In coastal cities like Los Angeles, Miami, and New Jersey, rents grew even faster, with markets like the Inland Empire pushing the pace due to a solid demand-supply dynamic. Miami, leading the southern markets, saw in-place rents averaging $11.87 per square foot—making it the priciest market in the South and one of only two markets (along with the Inland Empire) to reach double-digit rent growth nationwide. The high demand for industrial space, especially in high-density markets, has led to upward pressure on rental rates, which are likely to continue rising as available space dwindles.
Despite rising rents, the national vacancy rate for industrial properties crept up to 7% in September, a 30-basis-point increase from August. This slight rise in vacancies can be attributed to the record number of new industrial developments underway. Though construction activity has slowed from pandemic highs, there are still 362.6 million square feet of industrial space under construction across the nation. This scale of development, while below 2020 and 2021 levels, surpasses any annual total before the pandemic, reflecting ongoing confidence in industrial property demand.
Port Markets Face Unique Challenges
While some markets are benefiting from fresh construction, others, particularly along the coastal Northeast, are reaching saturation due to land constraints and regulatory challenges. Densely populated cities like New York and Boston are rapidly running out of land, leaving developers to look elsewhere or find creative solutions. Adding to the complexity, California’s strict environmental regulations and development policies make it challenging for new projects to take off in areas such as the Los Angeles port. Consequently, industrial developers are increasingly eyeing non-coastal locations that offer ample space, fewer regulatory hurdles, and attractive incentives.
These coastal challenges came into stark relief earlier this month when East Coast dock workers went on strike against port operators. Although the strike was resolved quickly with a tentative agreement, it sent shockwaves through the supply chain, creating weeks of delays. The incident underscored the need for an adaptable, well-distributed industrial network across the country—one that’s less reliant on a few key ports and better able to withstand regional disruptions.
Sunbelt Markets Rise with Manufacturing and Support Services
As industrial real estate reshapes itself, the Sunbelt markets have emerged as major beneficiaries of reshoring and nearshoring trends. Fueled by the growing demand for semiconductor manufacturing and EV battery plants, Sunbelt states from Georgia to Arizona are increasingly attracting industrial investments. In fact, Nashville, Atlanta, and Dallas-Fort Worth have all seen robust growth in in-place rents, a testament to their newfound attractiveness for manufacturing support services and logistics facilities. By decentralizing manufacturing away from traditional hubs, companies are tapping into favorable business climates, lower labor costs, and strategic geographic locations in the Sunbelt.
Shifting Sales Trends in Industrial Assets
While industrial real estate has attracted strong interest from investors, sales volumes in major markets like the Inland Empire saw a slight decline in 2024. Previously among the top four U.S. markets for industrial sales volume, the Inland Empire experienced a decrease in average prices from $225 per square foot in 2022 to $188 in 2024. Despite the cooling in a few high-profile areas, national industrial sales totaled a robust $43.7 billion through the first three quarters of 2024, with average sales prices increasing to $130 per square foot, up from $122 per square foot a year earlier. These numbers highlight the continued resilience of the industrial sector, even as specific high-demand markets begin to level off.
Regional Leaders in Industrial Development
Different regions have seen unique trends in their industrial real estate activity. Detroit, for example, now leads the Midwest with the lowest vacancy rate at 4.6%, overtaking Kansas City as the region’s top market for occupancy. In the Northeast, industrial construction has generally slowed, with Philadelphia’s construction pipeline shrinking by 3.4 million square feet over the past year. This reduction indicates a temporary slowdown but leaves room for potential growth as developers reassess the regional demand landscape.
Looking Forward: Industrial Growth’s New Frontiers
The industrial real estate sector stands at a turning point. Traditional port markets are facing a shortage of land and increased regulatory pressures, prompting investors and developers to look toward Sunbelt and Midwestern cities as the new frontiers of industrial growth. With the emergence of new logistics corridors and an emphasis on regional diversification, industrial real estate will continue to adapt to America’s evolving supply chain needs. The future of industrial development is not just about logistics hubs; it’s also about creating resilient, sustainable, and adaptable spaces that meet the demands of a shifting global economy. As the Sunbelt solidifies its position in this space, a new chapter in the U.S. industrial landscape is unfolding.
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