A wave of new industrial supply coupled with normalization of demand led to an increase in the national vacancy rate in November to 7.5%, according to CommercialEdge’s December industrial market report. That is an increase of 30 basis points over October and a significant jump from a vacancy rate of 4% two years ago.
The industrial pipeline showed its first month-over-month growth in November, with more than 361 million square feet under construction, representing 1.8% of stock. Despite this increase, development has continued to decrease this year likely due to higher borrowing costs. More than 1.1 billion square feet of space was delivered between 2022 and 2023, including 630.3 million square feet last year, but only 330.7 million square feet have been delivered in 2024 through the end of November. Although construction has slowed, completions during 2024 still exceed annual completions prior to 2020, said CommercialEdgie.
Atlanta has been a notable outlier this year, with 9.3 million square feet underway as of November. The city’s pipeline is bolstered by a wave of data centers that have started construction during the past 18 months, said CommercialEdge.
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The slowdown in new supply is expected to persist, as construction starts have totaled 208.7 million square feet so far this year, said the report.
“The market is steady and reasonable,” said Peter Kolaczynski, director at CommercialEdge. “The pullback in construction was inevitable and expected this year. As space gets absorbed in 2025 and 2026, we expect vacancy rates to plateau and the appetite for further development to pick up toward the latter part of the decade.”
Industrial transactions exceeded $54 billion for the year through November, which is on par with 2023 total sales volume. Industrial assets were trading at an average of $128 per square foot, up 2.7% from last year.
National in-place rents for industrial space averaged $8.25 per square foot in November, up 3 cents from October and nearly 7% over the past year. Miami logged the fastest growing in-place rents in November, increasing 11.1% year over year, followed by New Jersey, the Inland Empire and Atlanta. An ongoing cooling of the Southern California industrial market continues, with in-place rent growth and new lease rates trending downward, said Commercial Edge
Midwestern markets continued to see minimal rent increases. Six of the bottom eight markets for industrial rent growth were in the Midwest, including St. Lous, which recorded the slowest growth with in-place rents increasing 2.7% year over year.
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Kristen Smithberg
Kristen Smithberg is a Colorado-based freelance writer who covers commercial real estate, insurance, benefits and retirement topics for BenefitsPRO and other industry publications.
