Reduced demand and absorption of record supply will cool industrial rent growth this year, according to the latest Yardi Matrix national industrial market outlook.
Report Highlights
- National in-place rents for industrial space averaged at $7.74 per square foot at the end of January, a 7.6 percent increase from January 2023.
- Nationwide industrial vacancy increased slightly from the previous month and averaged 4.8 percent at the end of January.
- Total industrial transaction volume amounted to $2.6 billion in the first month of 2024.
- The under-construction pipeline featured 424.5 million square feet of industrial space as of January.
Rent growth to cool this year
In January, the national average for industrial space in-place rents hit $7.74 per square foot, showing a significant year-over-year increase of 760 basis points, with a slight 4-cent uptick from the previous month. Looking ahead, Yardi Matrix forecasts a rent growth decline due to reduced demand and oversupply saturation. Despite these challenges, fundamental factors backing the industrial real estate sector remain positive, suggesting stable rent growth overall.
Southern California maintains its dominance, with notable rental rate increases, particularly in the Inland Empire (12.9 percent) and Los Angeles (12.1 percent), Miami came in third with 11.4 percent year-over-year rent growth. Meanwhile, the national industrial vacancy rate saw a slight rise to 4.8 percent by January's end. Lowest vacancy rates were in Kansas City, Indianapolis and Columbus (2.6 percent each), followed by Charlotte (3.3 percent), Nashville (3.4 percent), Phoenix (3.7 percent) and Central Valley (4.0 percent).
Industrial starts continue to slow
The under-construction pipeline featured 424.5 million square feet of industrial space as of the end of January, amounting to 2.2 percent of total stock, Yardi Matrix data shows. Over the past year, the active pipeline decreased by approximately 300 million square feet, attributed to declining demand and increasing capital expenses.
The impact of decreased construction starts varied across markets. Memphis saw the largest decline, with starts dropping from 12.3 million to 1.1 million square feet, a 91 percent decrease. Significant declines were also seen in Denver (78 percent), the Inland Empire and Cincinnati (77 percent) and Philadelphia (72 percent). Only two of the top 30 markets—Boston and Bridgeport, Conn.—experienced an increase in starts compared to 2022.
Meanwhile, industrial investment during the first month of 2024 reached $2.6 billion, with properties trading at an average of $145 per square foot. Sales activity was concentrated in Chicago ($243 million), the Bay Area ($229 million), Denver ($210 million), Phoenix ($161 million) and the Inland Empire ($138 million).
Read the full Yardi Matrix Industrial Market Outlook: February 2024.
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