Industrial Report: Sector Transitions as Supply Shrinks
The industrial sector is transitioning from its pandemic-driven boom, with 2025 expected to bring further adjustments, according to the latest CommercialEdge office report.
After a surge in development that added over 1.1 billion square feet in 2022-2023, supply slowed in 2024, with 358 million square feet delivered. The pipeline is shrinking further, with just 236 million square feet of starts recorded last year and little growth expected in 2025.
Meanwhile, development is shifting toward manufacturing and data centers rather than warehouse and distribution space. Manufacturing starts have totaled nearly 150 million square feet since 2022, driven by rising investment, though cuts to clean energy incentives could impact future growth.
Vacancy rates have climbed from record lows, reaching 8 percent nationally in December 2024, with stabilization expected before a gradual decline in late 2025. While fundamentals remain solid, potential tariffs, labor market shifts, and local development restrictions present challenges for the sector.
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At the end of December 2024, 349.6 million square feet of industrial space was under construction nationwide, accounting for 1.7 percent of the total inventory, according to CommercialEdge data. Industrial starts fell to just 236 million square feet in 2024, down 35 percent from 2023 and over 60 percent from 2022. Weaker demand and high borrowing costs have slowed development, with no major rebound expected this year.
Phoenix led the nation in industrial development as a share of inventory, with 5.7 percent of its stock—22.3 million square feet—under construction. Other active markets included Kansas City, Mo. (3.9 percent or 11.5 million square feet), Memphis, Tenn. (3.5 percent or 10.5 million square feet), Philadelphia (2.4 percent or 11 million square feet), Denver (2.4 percent or 6.8 million square feet), and Columbus, Ohio (2.2 percent or 7.1 million square feet).
Industrial rents climb as vacancy rates rise
In December 2024, the average national rent for industrial properties rose to $8.40 per square foot, up three cents from November and 6.6 percent year-over-year, according to CommercialEdge.
Port markets remain among the top performers for in-place rent growth but no longer stand out as significantly. New Jersey led with a 9.8 percent annual increase, followed by Miami (9.6 percent), the Inland Empire (8.7 percent), and Atlanta (8.7 percent). While Southern California previously saw rapid rent hikes, growth slowed notably in 2024.
The Midwest experienced the weakest rent growth, with in-place rents rising just 2.0 percent in Kansas City, 2.3 percent in Detroit, and 2.4 percent in St. Louis. Over the past year, newly signed leases averaged $10.36 per square foot—$2.20 above the overall average, CommercialEdge data shows. Miami recorded the highest premium for new leases, with recent deals exceeding market rates by $5.65 per square foot, followed by Bridgeport, Conn. ($4.38) and Boston ($3.70).
Meanwhile, the national industrial vacancy rate climbed to 8.0 percent in December, a 50-basis-point increase from the previous month. The gap between in-place rents and new lease rates narrowed to $2.04 per square foot, reflecting a continued shift toward more balanced demand for industrial space.
Read the full CommercialEdge report.
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