October Industrial Featured Image

Industrial Transactions Still Muted as Bid-Ask Gap Holds Firm  

Key Takeaways: 

  • National industrial in-place rents averaged $7.51 per square foot in September, up 7.4% year-over-year       
  • The national vacancy rate stood at 4.6%, up 20 basis points month-over-month    
  • Nationwide, nearly 536 million square feet of industrial space was under construction    
  • Industrial transactions totaled $40.3 billion through September, at an average sale price of $135 per square foot   
  • The Inland Empire remained the leader in rent growth, with average rents rising 17.4% year-over-year in September 
  • Chicago was the only Midwestern market with a sales volume north of $1 billion 
  • Dallas had the largest development pipeline in the nation as of September, with 49.3 million square feet underway 
  • New Jersey logged the largest sales volume in the Northeast, closing $1.85 billion at $232 per square foot 

The e-commerce boom that began in the early days of the pandemic helped send demand for industrial real estate to never-before-seen heights, but as growth has normalized, a rebalancing has taken shape, our latest U.S. industrial market report reveals. 

E-commerce sales volume exploded in 2020, a shock that reshaped retail as we knew it. While growth cooled in subsequent quarters, the gains made during the pandemic are now entrenched. 

E-commerce sales volume has increased by 74% since the first quarter of 2021, although almost half of those gains were made in the initial spike in the second quarter of 2021. During the second quarter of this year, there was a total of $277.6 billion in e-commerce sales, according to the Census Bureau, an increase of 2.1% over the first quarter and 7.5% year-over-year. 

While on the surface, these numbers look robust, there are caveats. From 2010 (when the Census Bureau began providing the data series) to the first quarter of 2020, e-commerce sales grew at an average rate of 3.6% per quarter. Following the initial COVID-induced spike, that average is just 2.2%. It is also important to note that these numbers are not inflation-adjusted, and increasing prices account for a portion of the growth. Still, e-commerce’s share of core retail sales (excluding motor vehicles, their parts and gasoline) has increased from 14.2% in the first quarter of 2020 to 18.4% in the third quarter. 

Naturally, construction is going to slow compared to levels from the COVID explosion, but we see e-commerce as a consistent driver for sustainable and normalized demand through the rest of the decade.

Peter Kolaczynski, Director, CommercialEdge

Even as online sales growth has normalized, it continues to drive significant demand for industrial space because e-commerce operations require much more logistics space than traditional brick-and-mortar. Prologis estimates the additional space necessary for online sales to be three times higher due to “piece picking, product variety, direct-to-consumer shipping and the need to process returns.” While Amazon made waves when it paused on canceled large fulfillment centers last year, traditional big box retailers are still in the process of adding those spaces. Wal-Mart recently opened a 1.5 million automated fulfillment center, the second of four such announced projects that will allow the company to reach 95% of the population with one- or two-day shipping. 

E-commerce Volume  

We expect e-commerce to remain a considerable driver of growth in the industrial sector for the foreseeable future. Both multi-million-square-foot facilities and small-scale in-fill centers for last-mile delivery will be necessary for retailers to provide customers with a quick and efficient omnichannel experience. Many existing retailers will look to consolidate brick-and-mortar operations and streamline logistics networks, further fueling demand for space, the U.S. industrial property outlook predicts. 

Rents and Occupancy: Midwestern Metros Remain Slowest-Growing Markets 

National in-place rents for industrial space averaged $7.51 per square foot in September, an increase of six cents from August and up 7.4% year-over-year. While coastal port markets continue to see high growth of in-place rents, inland markets have experienced modest gains in 2023. 

The lowest rent growth among the top markets was in Denver, which saw a 3.1% increase. Chicago (3.4%), Cincinnati (3.5%), Detroit (3.6%) and Indianapolis (3.6%) were among the slowest-growing markets. The sole exception is Houston, which saw a 3.6% growth of in-place rents despite having one of the nation’s busier seaports. 

Average Rent by Metro 

The U.S. industrial vacancy rate in September was 4.6%, an increase of 20 basis points over the previous month. Record levels of new supply have been delivered in recent years, helping ease some of the availability crunch that made space hard to come by for many occupiers. 

The average rate for new leases signed in the last 12 months rose to $9.93 per square foot, $2.42 more than the average for all leases. 

Premiums were highest in port markets, such as the Inland Empire ($9.18 more per square foot), Los Angeles ($6.91) and the Bay Area ($6.58). Midwestern markets, including Detroit, St. Louis, Indianapolis and Kansas City, saw little to no premiums for new leases. 

Supply: Normalizing E-commerce Demand and Expensive Capital Continue to Shrink Industrial Pipeline 

Nationally, some 535.6 million square feet of industrial space were under construction at the end of the third quarter of 2023, equal to 2.9% of existing inventory, our U.S. industrial market report shows. Industrial pipelines remain historically large in most markets. Still, many have shrunk in size this year as starts have fallen sharply in response to normalizing e-commerce demand and more expensive capital. 

National Industrial Supply Pipeline Trend (MSF)

Dallas - Fort Worth and Phoenix remained among the most active markets for new developments, with 49.3 million and 46.6 million square feet of industrial space underway as of September. Despite limited developable land and local pushback on construction in the Inland Empire, the market also had some 29.6 million square feet of space in the pipeline. Nonetheless, development seems to be slowing in the Southern California market, as only 4.4 million square feet of space broke ground so far this year. 

Transactions: Year-to-Date Sales Reach $40.3 Billion, 38% Below Year-Ago Volumes 

Across the U.S., $40.3 billion of industrial sales have been logged through September, our industrial market report revealed. The first three quarters of 2023 saw a significant slowdown in transactions compared to last year when $65.4 billion in sales were recorded during the same period. 

2023 Year-to-Date Sales (Millions) 

Investors have remained subdued in the industrial transaction market this year despite the solid fundamentals of the sector. A bid-ask gap appears to be the culprit behind the low level of activity. Sellers have yet to readjust price expectations to a higher interest rate environment, and buyers are unwilling to pay historically high prices when financing is both more expensive and harder to come by. 

Despite headwinds, the national average sale price has increased by $11 per square foot (9%) this year, and in some markets, prices are still on the rapid upward trajectory that they have been since the beginning of the pandemic, industrial real estate market reports indicate. 

Western Markets: Southern California’s Spillover Effect Continues to Push Phoenix’s Growth 

Southern California remained the unshakeable leader in industrial rent growth, with rates in the Inland Empire appreciating 17.4% year-over-year in September. Los Angeles and Orange County followed, being the only other markets to experience double-digit rent growth nationwide, rising 11.8% and 10%, respectively.  

However, not just Southern California continues to see notable rent increases. Seattle in-place rents appreciated 8.5% over year-ago figures, while rents in Phoenix and the Bay Area gained 7.3% and 7.1%, respectively. 

West Regional Highlights  

Phoenix has been a much-in-demand industrial market of late, partly due to its standing as an overflow market for Southern California and its status as an emerging manufacturing hub. A new supply boom has yet to dampen in-place rent growth or send industrial vacancy rates (2.7%) upward. While new leases in Phoenix don’t command the same premium seen in port markets, new leases signed in the last 12 months cost $2.31 more than average in-place rents. 

Unsurprisingly, the largest premium for new leases signed over the past 12 months was recorded in the Inland Empire, averaging $9.18 per square foot. The next-largest premiums for new leases were recorded in Los Angeles ($6.91) and the Bay Area ($6.58 per square foot). 

The Inland Empire has been an industrial boom market since even before the pandemic shifted the sector into overdrive, delivering more than 215 million square feet since the start of 2013 (34% of stock). In 2023, that trend finally seems to be slowing down, with just 4.4 million square feet of construction starts this year.  

Despite that, as of September, the market had nearly 30 million square feet of space under construction, accounting for 4.7% of the local stock. However, there is local opposition to some new developments, with some groups and governments rejecting proposed projects, such as a 1.3 million-square-foot logistics center in Moreno Valley and a 541,000-square-foot project in Fontana. 

Year-to-date Sale Price Per Square Foot 

Southern California industrial markets continued to be the most attractive to investors across the country’s leading markets: The Inland Empire and Los Angeles recorded the largest sales volumes, closing $3.63 billion and $3.11 billion in sales, respectively. The Bay Area followed with $2.22 billion in closed industrial deals year-to-date through September. Phoenix was the only other Western market with sales north of $1 billion, logging $1.61 billion in transactions, our U.S. industrial market report specifies. 

In terms of the average sale price per square foot, California markets claimed the top four spots nationwide, with the Bay Area ($334 per square foot) in the lead, followed by Orange County ($324 per square foot), Los Angeles ($319 per square foot) and the Inland Empire ($251 per square foot). With an average of $133 per square foot, Denver was the only market to record a price below the national average of $135 per square foot. 

Midwestern Markets: Chicago Remains Most Sought-After Market for Industrial Sales in the Midwest 

Chicago’s industrial market stood out regarding sales, ranking as the only Midwestern market with a sales volume larger than $1 billion, closing $1.45 billion in industrial sales over the first three quarters of the year. The Twin Cities recorded the second-largest sales volume in the region, closing $780 million in industrial deals. Cincinnati followed with the third-largest sales volume in the Midwest, amounting to $591 million. The metro also stood out with the highest average sales price in the region at $105 per square foot. Cincinnati was also the only Midwestern market with an average sales price exceeding the $100 per-square-foot mark.  

Midwest Regional Highlights 

Overall, markets in the Midwest continued to record more sluggish fundamentals compared to coastal metros, with all markets experiencing rent growth below the 7.4% national average and asking rents below the national price of $7.51 per square foot.  

Detroit and St. Paul - Minneapolis came the closest to national figures, with in-place rents at $6.65 and $6.61 per square foot, respectively. However, while Twin Cities rates increased 4.9% year-over-year in September, the Motor City recorded an uptick of just 3.6% over the same period, according to our industrial property market report. 

On a percentage-of-stock basis, Columbus and Kansas City had the largest development pipelines among Midwestern markets, with 2.9% of their total inventory under construction, followed by Indianapolis, with 2.4% of stock underway. In terms of square footage, Chicago led with 19.8 million square feet of space under development, equal to 1.9% of the local footprint. 

Southern Markets: Dallas Leads the South in Development, Sales Volume 

Among leading Southern markets, Miami recorded the most significant uptick in rents, rising 9.6% year-over-year in September — the fifth-highest rent growth nationally, just slightly exceeded by Boston’s 9.8% rate. Atlanta and Nashville saw the next-largest rent increases, at 7.2% and 7.1%, respectively. 

Thanks to its more robust rent growth, Miami also posted the highest lease rate in the South, with in-place rents at $10.52 per square foot in September. The next-priciest markets were Baltimore and Tampa, with lease rates at $7.62 and $7.26 per square foot, respectively. In contrast, Memphis remained the most affordable market, with rents at just $3.73 per square foot. 

South Regional Highlights 

Miami also led the South in lease premiums, with new leases signed over the past 12 months costing $15.23 per square foot, $4.71 above in-place rents. Tenants in Nashville and Baltimore also inked at premiums, with new leases costing $2.84 and $2.53 more than in-place rents, respectively. 

The Dallas - Fort Worth Metroplex led industrial development in the region, with 49.3 million square feet of industrial space under construction as of September, equal to 5.4% of existing inventory. In terms of square footage, the metroplex had the largest development pipeline in the nation, outpacing Phoenix’s 46.6 million square feet of under-construction pipeline. 

Dallas also had the largest sales volume in the South and the fourth-largest nationwide, with investors closing $2.13 billion in industrial transactions at an average sale price of $122 per square foot. Houston followed, where transactions amounted to $1.8 billion, for an average of $131 per square foot. Atlanta also logged some $1 billion in sales, at an average of $114 per square foot. 

Industrial Space Under Construction & Planned (% of stock) 

Northeastern Markets: New Jersey Records Largest Sales Volume & Highest Sales Price in the Region 

In the Northeast, New Jersey recorded the largest transaction volume, closing $1.85 billion in industrial deals at an average sale price of $232. The average sale price of an industrial property in New Jersey has nearly doubled since 2019, when assets traded at $118 per square foot.  

The Cranford-Union submarket has been the most active for sales year-to-date through September, with $638 million traded across 29 sales. The I-287 South submarket is just a little behind, also logging 29 sales in 2023 totaling $601 million.  

Philadelphia logged the second-largest transaction volume in the Northeast, with $663 million in sales at a price per square foot of $117. Boston and Bridgeport followed with $557 million and $466 million in closed industrial deals, with properties trading at an average of $135 per square foot and $99 per square foot, respectively. 

Northeast Regional Highlights 

In terms of in-place rents, New Jersey and Boston remained the most expensive in the Northeast but remained below the double-digit lease rates recorded in Western markets. In September, New Jersey rents stood at $9.94 per square foot, rising 9.2% over year-ago figures. At the same time, Boston in-place rents came in at $9.86 per square foot, up 9.8% year-over-year. 

Connecticut’s growing industrial market, Bridgeport, also recorded a notable lease rate at $8.66 per square foot, climbing 8.3% in September 2023 compared to the same period last year. Philadelphia’s rate stood at $7.45 per square foot, just below the national average of $7.51 per square foot. Here, rent increased just 5.5% year-over-year, below the 7.4% national figure. 

Philadelphia also continued to have the largest industrial supply pipeline, with 16.1 million square feet of space under construction as of September, accounting for 3.8% of total stock. New Jersey had the second-largest pipeline in the region, with around 8.2 million square feet of space underway, equal to 1.5% of total inventory. Bridgeport and Boston had a 3.9-million-square-foot and 2.3-million-square-foot construction pipeline, equal to 1.8% and 1% of their respective stock.  

Economic Indicators: Producer Prices Level Off 

Wholesale prices increased 0.5% in the month and 2.2% year-over-year in September, according to the Bureau of Labor Statistics. The headline Producer Price Index (PPI)—which measures the prices received by producers—came in higher than analyst expectations. 

Core PPI, which excludes volatile Food and Energy categories, increased 2.7% year-over-year. 

The final demand services index increased 2.8% year-over-year, while final demand goods decreased 0.8% since last September. 

Economic Indicators 

Over the last 18 months, The Federal Reserve has been aggressive in using interest rate hikes in an attempt to drive down inflation, increasing the federal funds rate 11 times. The PPI, a leading indicator for headline consumer inflation, continues to show price increases easing in 2023. However, the slowdown in producer prices appears to have just as much to do with the clearing of bottlenecks in logistics networks as it does with the increase in interest rates. 

Download the complete October 2023 report for a full picture of how U.S. industrial markets evolved in the first 10 months of the year, including insights on industry indicators 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 office 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 office report coincide with the ones defined by the CommercialEdge Markets Map 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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