Industrial Report September 2023

2023 Industrial Construction Starts Dip One-Third from Last Year

Key Takeaways: 

  • National industrial in-place rents averaged $7.45 per square foot in August, up 7.6% year-over-year       
  • The national vacancy rate stood at 4.4%, unchanged from the previous month 
  • Nationwide, nearly 567 million square feet of industrial space was under construction    
  • Industrial transactions totaled $33.7 billion through August, at an average sale price of $136 per square foot   
  • The Inland Empire’s $3.37 billion sales volume accounted for nearly 10% of the nation’s total volume 
  • The Twin Cities logged the most notable rent increase in the Midwest, growing 4.8% over year-ago figures 
  • Houston and Dallas – Fort Worth led the South in sales, with investors trading $1.69 billion and $1.64 billion through August, respectively 
  • Boston recorded the highest rent growth in the Northeast, up 10.4% year-over-year  

Trends & Industry News: New Supply Slowdown on the Horizon 

The impressive run of new industrial supply is set to slow in 2024 and 2025, but long-term demand drivers will continue to fuel development in the sector for years to come, our latest U.S. industrial market report reveals. 

A delivery slowdown is on the horizon, with starts falling sharply this year. Just 204.3 million square feet of industrial space have broken ground so far in 2023, down from 614.1 million last year and 586 million in 2021. A convergence of factors is leading to the slowdown: Demand for industrial space has normalized from the significant levels seen in previous years, and interest rate hikes and stricter lending standards have made construction financing more expensive and harder to come by.  

Spec development has become a riskier proposition due to inflation hitting material and labor costs as well as general economic uncertainty. Despite all these headwinds, the long-term industrial property outlook for development remains positive. 

Logistics demand has normalized, and e-commerce sales growth has returned to its pre-pandemic trendline, yet many of the responses to the health crisis and ensuing supply-chain issues are now deep-rooted within the economy. To avoid disruption, many firms moved from just-in-time inventory management to just-in-case, which reduces exposure to supplier delays but requires more warehouse space. Furthermore, online sales require more logistics space than brick-and-mortar because distribution networks need to be larger and decentralized to deliver goods quickly. 

As development expectedly slows down, there will still be immediate bright spots in locales supporting these massive semiconductor and EV manufacturing projects. Based on the current slowdown coupled with future demand drivers, we’re projecting increased competition for space and the need for future deliveries 3-5 years out.

Peter Kolaczynski, CommercialEdge Senior Manager

The reshoring and nearshoring of manufacturing will be a massive driver of industrial demand going forward. Annualized construction spending on manufacturing facilities totaled $202 million in July, a year-over-year increase of more than 70%, according to the Census Bureau. 

Massive, multibillion-dollar semiconductor and electric vehicle facilities are being built across the country, driven mainly by government incentives and geopolitical trends. The clustering of supplier networks in markets that have these large facilities — locations including Phoenix, Austin, Columbus, Georgia and South Carolina — will fuel additional development. Nearshoring of manufacturing will also drive demand, with markets such as San Antonio and El Paso set to grow rapidly due to increased levels of trade with Mexico. 

Even with normalized demand, competition for space will increase once deliveries slow in 2024 and 2025. Our industrial property outlook anticipates that starts will pick up again in 2026. 

National New Supply Forecast (Square Feet) 

Rents and Occupancy: Port Markets Continue Rent Growth Dominance 

National in-place rents for industrial space averaged $7.45 per square foot in August, an increase of six cents from July and up 7.5% year-over-year. The highest rent increases continue to be in port markets, with Southern California leading the way yet again.  

The region claimed the top three spots nationally, with in-place rents growing 19.2% in the Inland Empire, 11.8% in Los Angeles and 10.5% in Orange County, year-over-year in August. On the East Coast, in-place rents grew 10.4% in Boston, 9.3% in New Jersey and 8.9% in Bridgeport. 

Average Rent by Metro 

The U.S. industrial vacancy rate stood at 4.4% in August, unchanged from the previous month. 

The average rate for new leases signed in the last 12 months rose to $9.91 per square foot through August, $2.46 more than the average for all leases. The largest spreads between in-place rents and new leases continued to be found in port markets, with the Inland Empire in the lead, where new leases cost $9.31 more per square foot. Other markets with substantial lease spreads include Los Angeles ($7.06 per square foot), Miami ($4.69) and New Jersey ($4.40), to name a few. 

Supply: Top 15 Markets Account for More Than Half of All Deliveries in 2023 

Nationwide, some 566.7 million square feet of industrial space were under construction as of August, equal to 3.1% of existing inventory, our latest U.S. industrial market report shows. Meanwhile, developers have delivered 344.1 million square feet of space across the U.S. this year. 

While industrial space is still being built across the country, much of the new space is concentrated in relatively few markets. The top 15 markets account for more than half of all completions this year. Dallas (32.1 million square feet) is by far the most active market for deliveries, nearly double second-place Phoenix (17.4 million). 

National Industrial Supply Pipeline Trend  (Million Square Feet)

Houston has seen the third most deliveries of any market this year, with 14.6 million square feet of industrial space added to the market through the end of August. Most of this space is in logistics parks, whether it be new builds or expansions to existing centers. Lovett Industrial, for example, so far this year has completed four buildings at Interchange 249 totaling more than 1.8 million square feet, part of a planned 3.1 million-square-foot development. The new supply wave is not yet over, either. Houston has another 21.2 million square feet under construction, representing 3.6% of stock. 

Transactions: Owner-Occupiers Look to Increase Cashflow with Sale-Leaseback Deals 

Nationwide, a total of $33.7 billion in industrial sales has been recorded through the end of August, with properties trading at an average of $136 per square foot. 

Investors continue to target facilities in Southern California as the region remained the largest logistics cluster in the nation despite a minor slowdown. The Inland Empire has remained the country's most active industrial sales market in 2023, with its $3.4 billion in sales accounting for nearly 10% of national sales volume. 

2023 Year-to-Date Sales (Millions) 

In the largest sale in the Inland Empire this year, Rexford Industrial purchased a 1.1 million-square-foot property in Fontana for $365 million ($331 per square foot) from its current occupier, Tireco, in a sale-leaseback. Interestingly, another tire company, Goodyear, also participated in a sale-leaseback of its distribution center in the market this year, with CIRE Equity acquiring the 829,000-square-foot property for $67.5 million. More owner-occupiers may capitalize on demand and increase cash flow by executing sale-leasebacks. 

Western Markets: West Records $10.7 Billion in Sales, One-Third of the National Volume 

Although labor disruptions and a decrease in global trade have caused a drop in the overall number of containers handled in the past year, the ports of Los Angeles and Long Beach continue to have the highest combined activity compared to other regions in the U.S. 

As a result, it's not surprising that Southern California continued to record the most robust industrial fundamentals across the country. As mentioned above, the region claimed the top three spots for rent growth, with rents rising 19.2% in the Inland Empire, 11.8% in Los Angeles and 10.5% in Orange County

West Regional Highlights 

Western markets remained the priciest in the country, with Orange County leading the way at an average rent of $14.05 per square foot. Los Angeles followed closely behind at $13.18 and the Bay Area at $12.48 per square foot. In contrast, the Central Valley was the sole Western market where rents were below the national average of $7.45, coming in at $5.88 per square foot. 

Lease spreads were the widest in California, with the Inland Empire averaging $9.31 more per square foot than in-place rents. At the same time, Los Angeles saw new leases signed at $20.24 per square foot, $7.06 above in-place rents. The Bay Area and Orange County also had large lease spreads of $7 and $5.36 per square foot, respectively. 

Looking at transactions, the West led the nation through the first eight months of the year, with investors trading a total of $10.72 billion across the region's top markets, the latest U.S. industrial market report shows. The Inland Empire claimed the top position, recording $3.37 billion in industrial transactions at an average price of $264 per square foot. 

Sale Price Per Square Foot 

Los Angeles and the Bay Area were closely behind, with total sales volumes of $2.39 billion and $1.98 billion, respectively. Notably, Los Angeles and the Bay Area also boasted the highest average sale prices in the region, with properties changing hands at an average of $346 per square foot and $332 per square foot, respectively. On the other end of the spectrum stood Portland, with a sales volume of $155 million year-to-date through August and with properties trading at $181 per square foot. 

With more than 51.3 million square feet under construction as of August, Phoenix was on track to increase its stock by 14.1%, the highest percentage across the top industrial markets. Development in the market is underscored by large manufacturing facilities for semiconductor production, driven by government incentives and geopolitical trends. Despite limited developable land, the Inland Empire also had 31.8 million square feet of industrial space in the pipeline, representing 5.1% of existing stock. 

Midwestern Markets: Twin Cities Leads Regional Rent Growth 

Investors in key Midwest industrial hubs traded $3.68 billion year-to-date through August, the second lowest sales volume among the four regions explored in our industrial property market report. Continuing the trends seen in previous months, Chicago led the Midwest in sales activity, with investors closing $1.16 billion through August at an average sale price of $85 per square foot. 

The Twin Cities saw the next largest sales volume, with industrial deals totaling $605 million closed at an average of $93 per square foot. Cincinnati and Detroit followed with $553 million and $428 million in sales, respectively. While properties traded at an average of $100 per square foot in Cincinnati, the average sale price was $75 per square foot in Detroit. 

Midwestern markets didn’t just lag the nation in sales activity; overall, industrial fundamentals continued to be slow. With only 2.5% of industrial space available for lease, Indianapolis recorded the slowest rent growth in the country, increasing only 3% year-over-year in August. In contrast, the highest rent growth in the region was recorded in the Twin Cities, up 4.8% over year-ago figures. 

Midwest Regional Highlights 

The Twin Cities — tying with Detroit — also recorded the highest in-place rent in August, at an average of $6.57 per square foot. Chicago had the next-largest average lease rate at $5.85 per square foot. At the same time, new leases signed in the Windy City over the past 12 months cost $7.30 per square foot — $1.45 more than in-place rates. Nonetheless, the widest lease spread in the Midwest was recorded in Columbus, where new leases inked over the past 12 months cost $1.73 more per square foot.  

As of August, Columbus also led development in the region on a percentage-of-stock basis: The supply pipeline equaled 3.4% of the market's total stock. Kansas City and Indianapolis followed, where under- construction projects accounted for 2.6% and 2.5% of inventory, respectively. But on a square footage basis, Chicago remained the leader, with 23.4 million square feet of industrial space in the pipeline. 

Southern Markets: Texas Metros Attract Most Industrial Capital in the South 

Among leading Southern industrial markets, Nashville posted the lowest vacancy rate in August, at 2%. Atlanta and Dallas – Fort Worth followed with 3.5% and 3.9% of their space available for lease, respectively. In contrast, Houston continued to record the highest vacancy rate at 8.4% in the South and nationally. 

At the same time, Houston experienced one of the slowest rent growths in the region, increasing only 3.9% year-over-year in August. Memphis (3.6%) and Charlotte (3.5%) were the only other markets with slower growth in the South. Miami, however, recorded the fifth-highest rent growth nationwide, surging 10.1% over year-ago figures. Nashville and Dallas – Fort Worth were next, with rent rates increasing by 7% and 6.9%, respectively 

South Regional Highlights 

Miami remained the priciest industrial market in the Southern region, with in-place rents coming in at $10.48 per square foot, making it the only top market outside the West with double-digit asking rents in August. The South Florida market also posted the widest lease spread, with new leases signed at $15.17 per square foot over the past 12 months — $4.69 more per square foot than in-place rents.  

On a percentage-of-stock basis, construction activity was slowest in Memphis, Baltimore and Atlanta at the end of August. In Memphis, ongoing industrial projects only comprised 0.7% of the existing stock, while in Atlanta and Baltimore, projects underway were set to increase the local supply by 0.8% and 1%, respectively. 

Dallas – Fort Worth stood on the other end of the spectrum with roughly 51.9 million square feet of industrial space underway as of August, equal to 5.8% of existing inventory. In terms of square footage, the Metroplex had the largest pipeline nationwide, slightly exceeding Phoenix’s 51.3-million-square-foot pipeline, according to our industrial property market report. 

Industrial Space Under Construction & Planned (% of stock) 

Meanwhile, Houston led the South in sales with nearly $1.69 billion in closed industrial deals year-to-date through August. At $142 per square foot, the metro also recorded the highest average sale price, above the $136 per square foot national average. Dallas – Fort Worth was slightly behind with $1.64 billion in sales at an average price of $124 per square foot.  

Northeastern Markets: New Jersey Remains Investors’ Favorite on the East Coast 

With port markets continuing to log the sharpest rent increases across the top industrial markets in the U.S., Boston rents grew 10.4% to an average of $9.78 per square foot, while the New Jersey market recorded a 9.3% growth year-over-year in August, to $9.91 per square foot. 

Bridgeport, Conn., followed closely with rents increasing by 8.9% to an average of $8.53 per square foot. Among leading markets in the region, Philadelphia was the most affordable with in-place rents at $7.53 per square foot, up 6.7% year-over-year in August, our U.S. industrial market report shows. 

Looking at new lease premiums, New Jersey led with a spread of $4.40 per square foot. In comparison, Bridgeport and Philadelphia recorded more moderate spreads at $1.79 and $1.78 per square foot, respectively. 

Northeast Regional Highlights 

New Jersey continued to lead the Northeast in investment volume, with more than $1.6 billion in closed industrial deals year-to-date through August. The market also recorded the region’s highest sale price, with properties trading at an average of $241 per square foot. Philadelphia followed, with $600 million in sales at an average of $115 per square foot. 

Despite weaker fundamentals, Philadelphia continued to have the largest under-construction pipeline in the Northeast, with 16.8 million square feet underway accounting for 3.9% of existing inventory. New Jersey’s 8.2 million-square-foot pipeline, equal to 1.5% of inventory, was the second largest in the region. Bridgeport had the most modest pipeline, with 1.2 million square feet under construction, which would increase its existing stock by 0.6%. 

Economic Indicators: E-Commerce Picks Up Again in Second Quarter 

A total of $277.6 billion in e-commerce sales were recorded during the second quarter of the year, an increase of 2.1% over the previous quarter and 7.5% over the year, according to the Census Bureau. 

E-commerce’s share of core retail sales (excluding food, automobiles and gasoline) increased to 18.4% from 18.1% in the first quarter. This was the highest mark e-commerce has attained since the first quarter of 2021. Following the initial pandemic-driven spike in 2020, its share of core retail sales had decreased in most subsequent quarters, but it has increased in both quarters with data available so far this year. 

E-commerce’s share of core retail sales now sits squarely on its pre-pandemic trendline. While many believed in 2020 that the crisis would shift the trend ahead by a few years, that does not seem to be the case. 

E-commerce Volume 

Download the complete September 2023 report for a full picture of how U.S. industrial markets evolved in the first eight 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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