The latest U.S. industrial market report reveals that the industrial sector continues to demonstrate robust performance despite uncertainties in the commercial real estate market. With increasing average industrial rents and low vacancy rates, the industrial sector remains resilient. However, challenges such as rising interest rates and a decelerating pipeline of new developments pose potential headwinds. This article explores the key takeaways from current data, including rental growth, occupancy rates, supply trends, and transactional activity in the US industrial real estate market. 

Industrial Rent Growth and Occupancy Rates

In March, national in-place rents for industrial space reached a record high of $7.15 per square foot, reflecting a 7.1% year-over-year increase. Average rents increased by 2.0% during the first quarter of 2023. Large coastal markets, such as the Inland Empire, Los Angeles, Boston, Orange County, New Jersey, and Bridgeport, experienced the highest year-over-year increases in asking rents.The national industrial vacancy rate remained unchanged at 3.9%, indicating solid occupancy rates across the country. Notably, the lowest vacancy rates were observed in markets like Columbus, the Inland Empire, Phoenix, Los Angeles, Indianapolis, New Jersey, and Bridgeport, which recorded rates below 3%.

Supply Trends: Construction and Deliveries

As of March, there were 636.6 million square feet of industrial space under construction nationwide, a decrease from the previous month. This decline suggests a potential shift toward more moderate levels of development. During the first quarter, approximately 127 million square feet of industrial space was delivered, indicating a potential record-breaking year if the pace continues. However, industrial market outlooks predict a deceleration in completions for the remainder of the year.

Challenges in Transactional Activity

Transactional activity in the industrial real estate market slowed in Q1 2023. Buyers and investors faced pricing disparities, and obtaining debt financing became increasingly challenging. Despite the lag in collecting data, the total sales volume in the first quarter amounted to $7.7 billion, significantly lower than the previous year’s Q1 volume of $20.5 billion. This decline in sales volume represents the lowest first-quarter volume since 2016.

Regional Highlights: Southern Markets and Miami’s Strong Fundamentals

Among the top Southern U.S. industrial markets, Miami showcased robust fundamentals with a year-over-year rent growth of 7.6%. Miami also reported the lowest vacancy rate in the South, tied with Atlanta, at 2.9%. Furthermore, Miami had the highest in-place rents in the region, reaching $9.61 per square foot. Other notable regional highlights include Atlanta and Dallas-Fort Worth, which experienced the highest year-over-year rent growth in the South, except for Miami. Dallas-Fort Worth boasted the largest construction pipeline, with the potential to expand its industrial footprint significantly. Houston, despite having the highest industrial vacancy rate in the region, demonstrated a substantial development.  

Despite the uncertainties in the commercial real estate market, the industrial sector in the United States continues to thrive. With increasing average rents, low vacancy rates, and a robust development pipeline, the industrial real estate market remains resilient. However, challenges such as rising interest rates and a deceleration in new developments pose potential headwinds. As the year progresses, monitoring these trends will be crucial to understanding the future trajectory of the US industrial real estate market.