03_March_23_Industrial Report_1400x598

Industrial Sector Remains Undeterred Despite Economic Slowdown

Key Takeaways: 

  • National industrial in-place rents averaged $7.12 per square foot in February, up 6.9% year-over-year   
  • The national vacancy rate stood at 3.9%, down 10 basis points month-over-month 
  • Nationwide, 667.5 million square feet of industrial space was under construction 
  • Industrial transactions totaled $3.9 billion at an average sale price of $150 per square foot 
  • The Inland Empire recorded the largest sales volume nationwide, totaling $855 million 
  • Midwest logistics hubs continued to post some of the most affordable rents across the U.S. 
  • Miami and Atlanta recorded the lowest vacancy rate in the South, both at 2.7% 
  • Boston logged the most robust rent growth in the North, up 10.7% year-over-year 

Despite elevated levels of new supply coming online over the past few years, the continued demand for industrial space is keeping market fundamentals healthy across the U.S. The national average rent for in-place leases stood at $7.12 per square foot in February, growing 6.9% over year-ago figures, as the CommercialEdge U.S. industrial market report reveals.  

Even with the historic number of deliveries we have seen in the past two-plus years, the continued appetite for space has industrial in a much better place than other commercial real estate sectors.

Peter Kolaczynski, CommercialEdge Senior Manager

While most industrial markets tracked by CommercialEdge registered sustained growth, port markets with limited space for new development continued to post the most extreme trends. Southern California remained the hottest industrial market, with climbing rents and falling industrial vacancy rates across the region. As a result — despite the economic uncertainties driven by high inflation and borrowing costs — the Inland Empire attracted the most capital year-to-date through February, with sales accounting for more than one-fifth of all sales volume nationwide. 

Rents and Occupancy: New Lease Premium Highest in Port Markets 

National in-place rents for industrial space averaged $7.12 per square foot in February, up 6.9% year-over-year and two cents higher than January, according to the CommercialEdge U.S. industrial market report. Growth of in-place rents was highest in port markets adjacent to a shipping port, led by the Inland Empire (15.6% year-over-year), Los Angeles (11.6%), Boston (10.7%), Orange County (9.2%), Bridgeport (9.0%) and New Jersey (8.7%). 

The national vacancy rate was 3.9%, a decrease of 10 basis points over the previous month. More than a billion square feet of new stock has been delivered over the last ten quarters, yet vacancy rates continued to stay historically low. Port markets and inland logistics hubs have the lowest levels of available stock to lease. The lowest industrial vacancy rates in the country were recorded in Columbus (1.1%), the Inland Empire (1.7%), Phoenix (2.3%) and Indianapolis (2.5%).  

Average Rent by Metro 

New leases signed in the last 12 months averaged $9.09 per square foot, $1.97 more than the average for all leases. The largest spreads between the average rate for all leases and the rate of a lease signed in the last 12 months were in port markets, both on the East and West coasts.  

In Los Angeles, new tenants paid $7.16 more per square foot than the market average, $6.69 more in the Inland Empire and $5.39 more in Orange County. On the other side of the country, new leases cost $4.40 more per foot in New Jersey, $3.33 in Miami and $3.16 in Bridgeport

Supply: More Than 73 million Industrial Space Delivers in the First Two Months of 2023 

Nationally, 667.5 million square feet of new industrial supply were under construction as of February, accounting for 3.7% of total inventory. So far this year, developers delivered 73.4 million square feet of industrial space across the U.S.  

As most markets have so far been able to absorb the record levels of new supply, developers are expected to continue to expand the national industrial stock. According to the CommercialEdge industrial property outlook, the U.S. industrial footprint could increase by around 8.9% over the next five years.  

Industrial Space Under Construction (Million Sq. Ft) 

Thanks to the lack of geographical constraints, its proximity to the ports of Los Angeles and Long Beach, as well as the push for increased semiconductor production in the U.S., Phoenix continued to be the country’s hottest market for industrial development, with 54.1 million square feet of space under construction in February, representing 15.6% of stock. 

Transactions: Healthy Fundamentals Drive Sales Despite National Slowdown 

The first two months of the year saw $3.9 billion in industrial sales, at an average of $150 per square foot, according to the CommercialEdge U.S. industrial market report. While a lag in collecting all data means that the number is not yet final, this is a significant drop-off from last year, when $9.1 billion in sales had been logged at this time in the year.  

2023 Year-to-Date Sales (Millions) 

While capital for many deals has dried up, sales are still getting done in markets with strong fundamentals. Consequently, port markets and inland logistics hubs recorded some of the largest sales volumes among the top 30 industrial markets. Besides the Inland Empire’s hefty $855 million volume, New Jersey and Charlotte recorded the largest sales volume, where industrial transactions totaled $209 million and $186 million, respectively.  

Western Markets: The Inland Empire Records Largest Sales Volume in the U.S. 

Industrial market fundamentals in Southern California remained robust in line with trends reported in previous CommercialEdge industrial real estate market reports, with rents rising 15.6% in the Inland Empire, 11.6% in Los Angeles and 9.2% in Orange County year-over-year in February. The Inland Empire and Los Angeles, along with Boston’s 10.7% rent increase, were the only markets to record double-digit rent growth among the top 30 industrial markets tracked by CommercialEdge. Outside Southern California, the Bay Area and Seattle recorded the next largest gains in the West, with in-place rents rising 7.2% and 7.0%, respectively, over year-ago figures. 

Western markets remained the most expensive in the country: Orange County led with an average rent of $13.20 per square foot, followed by Los Angeles’ $12.39 and the Bay Area’s $12.24 per square foot. Overall, Central Valley ($5.74) was the only region in the West to record in-place rents below the $7.12 national figure.  

Thanks to record levels of containers being handled at the ports of Los Angeles and Long Beach, Southern California markets also continued to record hefty premiums for new leases. New leases signed over the past 12 months in Los Angeles, Orange County and the Inland Empire averaged $19.55 per square foot, $18.59 per square foot and $15.01 per square foot, respectively. 

West Regional Highlights 

Major industrial markets in the West also continued to post some of the lowest industrial vacancy rates in the U.S., with the Inland Empire at just 1.7% — the second-lowest vacancy rate among the top 30 U.S. industrial markets. Phoenix and Los Angeles had vacancy rates of 2.3% and 2.6%, respectively.  

Consistent with trends observed in previous CommercialEdge industrial real estate market reports, Phoenix has maintained its position as a prominent industrial market, thanks to robust growth in the logistics and manufacturing sectors. As a result, the metro remained the country’s hottest market for industrial development, with 54.1 million square feet under construction as of February, representing 15.6% of the local stock. Manufacturing alone accounted for 12.5 million square feet of total space underway, though much of that will be owner-occupied.  

On a percentage-of-stock basis, Denver had the second-largest pipeline in the region, with more than 11.6 million square feet underway, representing 4.6% of its existing stock. Considering planned projects as well, the metro is looking to expand its inventory by 7.7%. Despite limited available developable land and zoning restrictions, the Inland Empire had around 27.7 million square feet under construction, accounting for 4.5% of stock.  

Sale Price Per Square Foot 

With low vacancies and substantial rent growth, the Inland Empire also remained an attractive market for investors. Despite limited available capital for many deals, transactions in the market are still getting done, where $855 million in transactions took place in the first two months of the year at an average sale price of $240. The Inland Empire accounts for more than one-fifth of all sales volume nationwide, according to the CommercialEdge industrial property market report. 

Average sale prices exceeded the $200 per-square-foot threshold in most Western markets, except for Denver and the Bay Area, where industrial assets traded at $88 per square foot and $190 per square foot, respectively. 

Midwestern Markets: Despite Low Vacancies, Columbus and Indianapolis Remain Among the Nation’s Most Affordable Markets  

Besides port markets, inland logistics hubs had some of the lowest levels of available industrial space to lease. In the Midwest, Columbus recorded the lowest industrial vacancy rate nationwide, with a rate of just 1.1%. Indianapolis had the second-lowest vacancy rate in the region and the fourth-lowest in the country at 2.5%, outpacing Los Angeles and its 2.6% rate. 

But while Southern California markets led the country in rent growth by wide margins, industrial markets in the Midwest — even tight logistics hubs — continued to post some of the most affordable rents among the country’s leading markets. For example, Columbus recorded the lowest lease rate at just $4.14 per square foot, Indianapolis had the second lowest at $4.34 per square foot, followed by St. Louis at $4.36.  

Midwest Regional Highlights 

At the same time, the highest rent growth in the Midwest was registered in Detroit, where rents were up 4.2% year-over-year as of February, making Detroit the priciest industrial market for industrial leases in the region at $6.47 per square foot. The metro also recorded the widest lease spread, with new leases getting signed at $7.82 — $1.35 more than in-place rents.  

The more modest growth rate in the region is likely due to a more rapidly expanding industrial inventory in recent years, thanks to more available developable land for new projects. On a percentage-of-stock basis, Columbus had the largest development pipeline among Midwestern markets, with 4.5% of its total stock underway, followed by Indianapolis with 3.5% of inventory under construction. In terms of square footage, Chicago led with 27.3 million square feet of space under development, equal to 2.7% of local inventory. 

Through the first two months of the year, investors closed around $316 million in industrial deals across the Midwest’s top markets. Indianapolis recorded the largest sales volume, a total of $151 million, with properties trading at $153 per square foot. The Twin Cities came in second with $111 million in closed industrial deals, at $85 per square foot. 

Southern Markets: Dallas Remains an Industrial Boomtown for Developers 

Among leading Southern markets, Atlanta and Miami posted the lowest vacancy rates in February, both markets coming in at 2.7%. Nashville followed, with a 2.9% vacancy rate, well below the 3.9% national average. In contrast, Houston had the highest vacancy rate at 7.6%, both in the South and nationwide. 

In markets with higher vacancies, rent growth also remained slower compared to other markets in the South. For instance, Houston and Memphis saw rent rates increase by only 2.7% and 3.4% year-over-year in February, representing some of the most moderate gains in the region and across the top 30 markets surveyed by CommercialEdge.  

Rent growth was more robust in Miami and Atlanta, with both markets recording a 7.3%-expansion over year-ago figures. Dallas – Fort Worth and Baltimore followed with rate increases of 5.9% and 5.7%, respectively.  

Southern markets with strong fundamentals also saw wide lease spreads, with Miami in the lead: While in-place rents averaged $9.95 per square foot, leases signed over the past 12 months averaged $13.28. Tenants in Nashville also signed at premiums, with new leases costing $2.02 more than in-place rents. Overall, all markets in the South saw higher averages for new leases than in-place rents.  

South Regional Highlights 

Construction activity was the most tempered in Memphis, Atlanta and Baltimore on a percentage-of-stock basis: Underway industrial projects in Memphis totaled 1.6% of existing stock, while Atlanta’s and Baltimore’s development pipelines were set to increase the local stock by 1.8% and 1.9%, respectively.  

On the other end of the spectrum stood Dallas – Fort Worth with more than 58.9 million square feet of industrial space underway as of February, equal to 6.7% of existing stock. In terms of square footage, the Metroplex had the largest pipeline nationwide, exceeding Phoenix’s 54-million-square-foot pipeline. Considering projects in the planning phases, Dallas – Fort Worth’s industrial stock is set to increase by 12.2%, the same rate as Charlotte’s under-construction and planned industrial pipeline.  

Among Southern markets, Charlotte and Houston had the most robust sales volumes, closing $186 million and $120 million in sales, respectively, year-to-date through February. Houston led in terms of pricing, with properties trading at $155 per square foot, followed by Atlanta’s $150 average per square foot and Dallas – Fort Worth’s average of $109 per square foot. 

Northeastern Markets: New Jersey Continues to Attract Most Industrial Capital in the North 

On par with other port markets, New Jersey’s vacancy rate remained tight at 2.8%, coming in after Los Angeles’ 2.6% and Miami’s 2.7%. Thanks to the market’s high occupancy rate and continued demand, industrial rents in New Jersey experienced significant growth, rising 8.7% year-over-year in February. The market also had one of the widest leases spreads nationwide, with in-place rents averaging $9.39 per square foot, while new leases signed over the past 12 months averaged $13.79 per square foot.  

Boston recorded the highest rent growth in the Northeast and the third highest nationwide, surging 10.7% over the past 12 months. At the same time, new lease premiums reached $2.31 per square foot in Boston. Connecticut’s growing industrial market, Bridgeport, also recorded notable rent growth, up 9% year-over-year in February. Rates for new leases here also came in higher than in-place rents, with a spread of $3.16 per square foot, the CommercialEdge industrial property market report shows. 

Northeast Regional Highlights 

New Jersey’s $209 million transaction volume, the second highest in the country, placed it at the forefront of Northeastern markets. However, the market’s average sale price of $219 per square foot still lagged the prices recorded in the West, where markets such as Seattle and Orange County exceeded the $300 per-square-foot mark. At $218 per square foot, Philadelphia was home to the second-highest year-to-date sale price in the Northeast. However, Philadelphia’s $111 million in sales was outpaced by Bridgeport’s $150 million in closed industrial deals, which averaged $186 per square foot. 

Philadelphia led the Northeast in terms of new supply — the market stood out with an 18.5-million-square-foot development pipeline, equal to 4.4% of existing stock. Considering planned projects, the Pennsylvania market is looking at a market expansion of 12.2%, according to the CommercialEdge industrial property outlook. New Jersey had the second-largest industrial pipeline in the Northeast, with more than 10.9 million square feet of space underway, accounting for 2.0% of total inventory. Boston followed with 6.4 million square feet, accounting for 2.7% of stock. 

Economic Indicators: E-Commerce Slips in Fourth Quarter 

Seasonally adjusted e-commerce sales totaled $262 billion in the fourth quarter, according to the U.S. Census Bureau, $250 million less (down 0.1%) than the previous quarter. E-commerce’s share of core retail sales fell 10 basis points to 17.6% in the quarter. Year-over-year growth for the fourth quarter was 6.5%, the lowest mark since 2009. Despite the slowdown, e-commerce sales topped $1 trillion annually for the first time last year.  

Economic Indicators 

Decelerating e-commerce growth was to be expected as the country emerged from the pandemic, but the slowdown has been fiercer than anticipated. Physical stores reopened as restrictions eased and consumers slowly returned to in-person shopping while pent-up demand for services led to consumptions rotating away from goods. Yet inflation also likely plays a role in slowing e-commerce sales growth. With consumers being forced to spend more of their income on necessities like food, shelter and utilities, they have less money to spend on goods from online retailers. 

Trends & Industry News: Electric Vehicles Charge Up Industrial 

Driven by government incentives and a race to grab market share by automakers, the electric vehicle (EV) industry looks poised to fuel growth in the industrial sector for years to come. Boosting climate-friendly technology, including the electric vehicle industry, has been a focus of the Biden Administration’s first few years.  

The Inflation Reduction Act (IRA), passed last year, will provide billions of dollars in incentives to manufacturers of EVs and their parts as well as tax credits for consumers who purchase an EV. Crucially, the credits to consumers will only be available for vehicles that were manufactured in the U.S. Additionally, the CHIPS and Science Act will boost domestic production of semiconductors, a key competent in EVs.  

There are blocks in the road before electric vehicles can become ubiquitous. A big one is that many more charging stations will be needed. The White House announced that Tesla’s charging stations will be opened up to all brands of EVs in the near future, yet the country will still be well short of the number of stations needed. The Administration’s Charging and Fueling Infrastructure grant program makes $2.5 billion available for charging station construction over the next five years, attempting to close this gap. 

The coming EV wave will create a plethora of opportunities for industrial real estate developers and investors, especially in the Southeast and Midwest — and transform the sector in other ways. Automakers will own their manufacturing plants but will also require an array of supplemental manufacturers and suppliers located nearby, as evidenced by the firms located around Tesla’s gigafactories.  

Current battery ranges mean that it will be a long time before electric semi-trucks meaningfully reshape supply chains, but smaller electric delivery vehicles have the potential to make last-mile infill delivery sites more palatable to local communities by reducing noise and pollution associated with those properties. 

Download the complete March 2023 report for a full picture of how U.S. industrial markets fared in the first two months of the year, including insights on industry and economic recovery fundamentals. 


You can also see our previous industrial reports.


The monthly CommercialEdge national industrial real estate report considers data recorded throughout the course of 12 months and tracks top U.S. industrial markets with a focus on average rents; vacancies (including subleases but excluding owner-occupied properties); deals closed; pipeline yield; forecasts; and the economic indicators most relevant to the performance of the industrial sector.

CommercialEdge collects listing rate and occupancy data using proprietary methods.

  • Average Rents —Provided by Yardi Market Expert, a cutting-edge service that uses anonymized and aggregated data from other Yardi platforms to provide the most accurate rental and expense information available.
  • Vacancy — The total square feet vacant in a market, including subleases, divided by the total square feet of industrial space in that market. Owner-occupied buildings are not included in vacancy calculations.

Stage of the supply pipeline:

  • Planned — Buildings that are currently in the process of acquiring zoning approval and permits but have not yet begun construction.
  • Under Construction — Buildings for which construction and excavation has begun.

Sales volume and price-per-square-foot calculations for portfolio transactions or those with unpublished dollar values are estimated using sales comps based on similar sales in the market and submarket, use type, location and asset ratings, sale date and property size.

Year-to-date metrics and data include the time period between January 1 of the current year through the month prior to publishing the report.   

Market boundaries in the CommercialEdge industrial report coincide with the ones defined by Yardi Matrix and may differ from regional boundaries defined by other sources. 

Evelyn is a creative writer covering commercial real estate trends and insights in the U.S. Evelyn was previously a senior associate editor at Multi-Housing News and Commercial Property Executive. She has an academic background in Journalism and Irish Studies. Evelyn has been covering the CRE industry since 2017. Reach her via email.

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