Industrial Property Values On The Upswing
Industrial property values have risen steadily over the decade and continue to grow in 2024 despite normalized demand and reduced transaction volumes due to high interest rates, according to the latest CommercialEdge report.
The average national sale price of industrial properties in 2024 reached $142 per square foot, a 15.4 percent increase from last year and a 71.2 percent rise from 2019. This surge began with the pandemic, which pushed industrial prices closer to office property values ($165 per square foot).
Between 2019 and 2023, average sale prices more than doubled in top markets like Nashville, Tenn., the Inland Empire and Philadelphia. Despite some dips in early 2024, prices continue to rise in New Jersey, Dallas-Fort Worth and the Bay Area. These increases persist despite falling transaction volumes, a surge in new supply and higher capital costs, driven by recent lease rate growth. With new construction slowing and demand stabilizing, long-term prospects remain strong due to manufacturing shifts towards nearshoring and reshoring.
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Some 381.3 million square feet of industrial space was under construction nationwide at the end of May, accounting for 1.9 percent of total stock, CommercialEdge data shows. The active pipeline is shrinking as fewer new projects break ground and under-construction ones are completed. Since the beginning of the year, 177.8 million square feet came online, while only 69.2 million square feet have commenced, marking the sparsest new starts in the past decade.
The largest pipelines on a percentage of stock basis were found in Phoenix (9.8 percent, 38.7 million square feet underway), Kansas City, Miss. (4.6 percent, 13.3 million square feet), Memphis, Tenn. (3.4 percent, 10 million square feet), Charlotte, N.C. (3.0 percent, 9.5 million square feet), Denver, Colo. (2.9 percent, 7.9 million square feet) and Columbus, Ohio (2.7 percent, 8.5 million square feet). Meanwhile, industrial sales year-to-date in May totaled $19.7 billion.
Industrial rents continue to surge
In May, the national average rent for industrial space reached $8.00 per square foot, marking a significant rise of 750 basis points compared to the previous year. According to CommercialEdge data, this represents a 4-cent increase from April 2024. The Inland Empire led in rent growth once again, with in-place rents rising 12.6 percent over the past year, followed by Los Angeles at 11.6 percent, Miami at 11.4 percent and New Jersey at 9.6 percent. Phoenix, the fastest-growing market not adjacent to a shipping port, saw an 8.7 percent increase, nearly matched by Orange County (8.6 percent) while Seattle experienced an 8.2 percent year-over-year growth.
At the same time, the national industrial vacancy rate rose to 5.6 percent in May, a 40-basis-point increase from the previous month. Vacancy rates have been climbing for over a year due to slowing demand and an unprecedented influx of new supply. Columbus had the lowest vacancy rate at 2.7 percent, followed by Kansas City and Nashville, both at 3.8 percent.
The average rate for new leases signed in the past 12 months was $10.25 per square foot, $2.25 higher than the average for all leases. Miami saw the highest premium for new leases, with tenants paying $5.55 more per square foot than the market average. Significant premiums were also observed in Los Angeles ($4.71), the Inland Empire ($3.56), Tampa, Fla. ($3.39) and Nashville ($3.26).
Read the full CommercialEdge report.
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