Prime Industrial Markets
Industrial is the current darling of commercial real estate. With historical sales numbers, low vacancies, and robust supply across major metros, investors are yearning for the opportunity to enter the industrial market. But as the asset class grows in popularity, supply and demand become unbalanced. Tight market conditions, paired with rising land and construction costs, have hindered industrial development, especially in port cities. Across the U.S., industrial real estate is booming, combating challenges to stay on top.
The DFW metro is the second-largest industrial market for inventory, with over one billion square feet in existence. Over the past decade, industrial real estate has flourished with e-commerce, logistics firms, and manufacturing all driving demand throughout the region. With an annual rent growth rate of 12.8 percent, Dallas-Fort Worth is at the top of the list for investors nationwide. Leasing started strong in 2022, with 428 new leases already signed.
Port cities like Seattle are experiencing intense activity and demand as e-commerce continues to grow the need for shipping and fulfillment centers. The city hit historical numbers for both rent rates and rent growth going into 2022, at 12.81 per square foot and 9.9 percent year-over-year, respectively. In the past decade, Seattle has added over 32M square feet of industrial properties with no plans of slowing down. The city is predicted to have record deliveries this year, with 9.5M square feet underway. High demand has compressed cap rates to 4.9 percent, lower than its three-year average.
Ranking number one for transaction volume, Los Angeles’ industrial market entices institutional buyers worldwide. Totaling $8.8B in 12 month sales volume, the L.A. area offers a robust annual rent growth rate, 13.1 percent, and high purchase prices, reporting $250 per square foot. This has compressed cap rates to 4.5 percent on average. Although the supply pipeline has slowed, the metro averaged 1.2M square feet in deliveries in the last five years.
Investment activity throughout the Raleigh-Durham market has been strong over the past two years and is expected to continue its strong growth. Life science and third-party logistics companies heighten the demand for industrial space, helping landlords increase the average rent rate to $9.97 per square foot, just below the national rate. Going into 2022, the metro averaged $132 per square foot for market sale price, attracting national investors. Raleigh-Durham has increased its supply pipeline to combat demand, with 3.8M square feet underway, or four percent of its existing inventory.
Atlanta, the most populous and capital city of Georgia, has become a sought-after industrial market in the U.S. The city has established itself as a regional and national distribution hub for the country’s fastest-growing Fortune 500 companies, such as Amazon, Delta, and Microsoft. As more businesses enter the market, competition has increased, and prices rise rapidly. In Atlanta, industrial market rent rates outpace the National Index, experiencing 12.9 percent year-over-year rent growth over the past 12 months.
Experiencing explosive population growth and investor demand, Phoenix has had two of the best years in its history. Reaching $5.4B in 12-month sales volume, investors from nearby coastal markets in California have run to Phoenix due to its tax incentives and more affordable pricing. The Valley’s market rent per square foot is slightly above the national average at $10.33. New supply is concentrated in the Southwest Valley, with 37.9M square feet underway.
The Southeast has seen an influx of investor interest and transaction activity over the past year, with Nashville being a top contender. The music city’s annual rent growth is 14 percent, fueled by rapid population growth. In early 2022, leasing trends remained strong, with many tenants opting for the Southeast and Wilson County submarkets. Construction also remains steady, with 11.7M square feet on the way. Nashville’s industrial market recorded a record deal volume, $1.4B, in 2021 and has remained steady in Q1 22 with over $300M worth of assets sold.
High-tech and life sciences companies are driving demand in Boston’s industrial market. Trying to keep up with the urgency for more supply, Boston currently has 6.6M square feet under construction. Net absorption is more than triple that of 2019 and 2020, reaching 2.9M square feet over the last 12 months, fueled by e-commerce firms such as Amazon, which recently leased over two million square feet in the marketplace. Boston is also experiencing record transaction activity, with $4.4B in assets being acquired in 2021.
Prime proximity to major metros has helped put Charlotte on the map for industrial investors. The city has 15.5M square feet under construction, but leasing activity is ramping up, keeping vacancy rates at 5.0 percent, which is lower than Charlotte’s five-year average. 2021 brought record sales volume to the market, reaching $2.2B. Charlotte’s annual rent growth reached 12.3 percent, while average market rent came in at $7.40 per square foot. Although market rents are lower than in other Southeast markets, purchase prices are much more affordable, raising the average cap rate to 6.6 percent.