US Warehouse Availability Dropped Again Even As Development Grows
By Greg Cornfield December 22, 2022 6:55 pmreprints
The national industrial market has tightened again despite record levels of construction as warehouses throughout the United States trade hands for higher prices.
The latest report from Commercial Edge found that the overall industrial vacancy rate contracted another 20 basis points by the end of November to 3.8 percent. This comes even as the development pipeline increased to more than 742 million square feet under construction, equal to 4 percent of existing inventory, with an additional 684.5 million square feet in the planning stages.
About $7 billion of warehouse investment sales closed in November alone, bringing the year-to-date total to $78.8 billion, but increasing interest rates led to a tightening market in the second half of the year. Total sales increased 34.9 percent year-over-year in the first quarter and 8.6 percent in the second, but then volume fell 37.5 percent in the third quarter, according to the report.
Rising interest rates also impacted sales prices, with the average for an industrial property slipping 5.4 percent to $127 per square foot in the third quarter, and resting at $116 per square foot through the first two months of the fourth quarter. But those marks were still well above 2021 levels, with the average sales price this year marking a 17.8 percent increase year-over-year.
Southern California still leads in terms of price per square foot and in terms of sales volume. More than $4.55 billion in industrial real estate sales have closed so far in Los Angeles at an average $300 per square foot; and $4.43 billion closed in the Inland Empire at $295 per square foot.
Nationally, in-place rent increased 6.5 percent annually to an average of $7 per square foot in November. The Inland Empire and Los Angeles were the only markets to record double-digit rent growth among the top 30 industrial markets CommercialEdge surveyed. The average Inland Empire rent is at $7.85 per square foot, which is up 13.1 percent compared to 2021, while Los Angeles’ rent is at $11.85 per square foot, which is 10.7 percent higher than a year ago.
New Jersey’s in-place rent is at $9.22 per square foot, rising 8.9 percent year-over-year — the third-fastest rent growth rate nationwide. With leases signed over the previous 12 months averaging $13.36 per square foot, New Jersey had one of the widest industrial lease spreads in the U.S.
Miami’s rent is $9.72 per square foot, leading the Southeast and exceeding Western markets such as Seattle and Portland.
Single-market vacancy dropped most in Nashville, where the average rate tightened near to 1 percent. The Southern California markets also have some of the lowest vacancy rates in the nation, with the Inland Empire at just 1.2 percent — the second-lowest vacancy rate among the top 30 U.S. industrial markets. Los Angeles and Orange County had vacancy rates of 2.2 percent and 3 percent, respectively.
Dallas leads the development pipeline with a whopping 62.6 million square feet underway, followed by Phoenix with 52.5 million square feet under constriction.
Gregory Cornfield can be reached at email@example.com.