Industrial Report: Automation and AI Shape Future Demand
Automation and artificial intelligence are becoming increasingly important for industrial real estate tenants who need high-quality assets to meet future demands, according to the latest national industrial market report by CommercialEdge.
During the early stages of the pandemic, industrial occupiers quickly expanded to support the surge in e-commerce. Now, with online sales growth and supply chains stabilizing, logistics firms and retailers are focused on optimizing their existing networks to accommodate automation and AI technologies.
One major challenge for the sector is access to power, as automation and advanced manufacturing require significant energy. To address this, tenants are increasingly seeking sustainable energy solutions like solar power to reduce reliance on power grids, particularly in areas prone to brownouts.
For example, Amazon is testing automated micro-fulfillment centers at Whole Foods locations, starting in Plymouth Meeting, Penn., and potentially expanding nationwide. Meanwhile, manufacturers are adopting automation and AI to boost production efficiency and precision, CommercialEdge highlights. Despite the challenges of labor, power and water availability, the demand for facilities that can support these technologies is expected to rise.
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At the end of October, 358.8 million square feet of industrial space was under construction across the nation, representing 1.8 percent of existing inventory. According to CommercialEdge, industrial construction slowed in the third quarter, with 69.3 million square feet completed, considerably less than the 119.3 million from the first quarter and 101.5 million in the second.
Meanwhile, year-to-date completions reached 310.2 million square feet. The drop follows a decline in new starts, which fell from 1.1 billion square feet in 2021-2022 to 352.1 million in 2023, with just 184.4 million started in 2024 so far.
The largest pipelines on a percentage-of-stock basis were found in Phoenix (6.7 percent, 28.1 million square feet underway), Kansas City, Mo. (4.0 percent, 11.7 million square feet), Memphis, Tenn. (3.5 percent, 10.5 million square feet), Philadelphia (2.8 percent, 12.7 million square feet) and Columbus, Ohio (2.6 percent, 8.1 million square feet). At the same time, industrial sales year-to-date in October totaled $49.2 billion.
Industrial rent up 6.1 percent y-o-y as vacancy rises
In October, the national average rent for industrial space reached $8.22 per square foot, up six cents from the previous month and rising 6.1 percent year-over-year, according to CommercialEdge. Miami led in rent growth, with a notable increase of 11.0 percent. This marks one of the rare instances in the last five years where a Southern California market wasn’t the leader in rent growth.
The Inland Empire ranked second, with a 10.3 percent year-over-year increase, followed closely by New Jersey at 10.2 percent. Southeastern markets also experienced strong growth, with in-place rents in Atlanta rising 9.0 percent and in Nashville by 8.7 percent over the past 12 months.
New leases signed in the past year averaged $10.30 per square foot, which is $2.08 higher than the national average. The largest spread between new lease rates and in-place rents occurred in Miami, where tenants signing leases in the past year paid a premium of $5.25 per square foot.
The national industrial vacancy rate rose to 7.2 percent in October, a 20-basis-point increase from the previous month. This marks a steady rise from the near 4% vacancy rate seen in recent years, with the highest vacancy rates found in Dallas and Chicago at 8.3 percent, Baltimore at 8.7 percent, Indianapolis at 9.1 percent and Denver at 9.6 percent.
Read the full CommercialEdge report.
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