INDUSTRIAL INVESTMENT GUIDE
Industrial INVESTMENT GUIDE
The industrial sector has remained steady throughout the first two quarters of the year, despite macroeconomic uncertainties such as maturing loans, stricter loan underwriting, and a decline in import volumes. While the pace of development starts may be decreasing, it is essential to note that this slowdown is compared to the exceptional growth observed in recent years. Looking at historical trends, the construction pipeline remains significant. With that in mind, new supply entering the market is still expected to increase the national vacancy rate in 2023, while rent growth has slowed from the three percent peak in H2 2022. The rent growth rate will slow down even more in H2 2023 because of the record amount of new supply about to hit the market. As of Q2 2023, over 600 million square feet of industrial space are under construction. According to a report by Commercial Edge, 162.4 million square feet of industrial space were delivered in the first four months of 2023. Further, multiple electric vehicles and semiconductor plants opening in 2024-25 will generate additional leasing activity.
CoStar Group 12 Mo Deliveries in SF 12 Mo Absorption Units Vacancy Rate 12 Mo Rent Growth Vacancy Change (YOY) Sales Volume 486M 294M 4.7% 9.1% 0.8% $93.5B
MARKET OVERVIEW Source:
CoStar Group CURRENT QUARTER RBA (000) Logistics 12,498,195 Specialized Industrial 4,009,360 Flex 1,857,341 National 18,364,897
KEY INDICATORS Source:
NATIONAL RENT GROWTH YOY
Source: CoStar Group Atlanta 11.5% Nashville 9.8% New York 7.9% Denver 5.8% Austin 8.0% San Diego 8.7% Tampa 13.7% Los Angeles 8.5% Fort Lauderdale 15.8% Jacksonville 14.0% DallasFort Worth 9.9% Chicago 8.6% Minneapolis 10.0% Cleveland 7.2% Orange County 10.6% Phoenix 14.5% } Atlanta, GA: 11.5% } Austin, TX: 8.0% } Chicago, IL: 8.6% } Cleveland, OH: 7.2% } Dallas-Fort Worth, TX: 9.9% } Denver, CO: 5.8% } Los Angeles, CA: 8.5% } Fort Lauderdale, FL: 15.8% } Jacksonville, FL: 14.0% } Minneapolis, MN: 10.0% } Nashville, TN: 9.8% } New York, NY: 7.9% } Orange County, CA: 10.6% } Phoenix, AZ: 14.5% } San Diego, CA: 8.7% } Tampa, FL: 13.7%
9.1%
United States
Net Absorption, Net Deliveries & Vacancy Over the Years
Source: CoStar Group ■ Net Absorption ■ Net Deliveries ■ Vacancy 2022 2018 2017 2023 2019 2024 2020 2026 2027 2025 2021 Absorption & Deliveries in Millions SF Vacancy 160 140 120 100 80 60 40 0 20 180 200 220 5.2% 5.0% 4.8% 4.6% 4.4% 4.2% 4.0% 3.6% 3.8% 5.4% 5.6% 5.8% Forecast
National vacancy trends
Source: Statista YEAR AVG. VACANCY RATE 2019 5.0% 2020 5.5% 2021 5.0% 2022 4.0% 2023 4.7% VACANCY RATES Source: CoStar Group ■ Specialized ■ Logistics ■ Flex ■ United States 2022 2018 2017 2023 2019 2024 2020 2026 2027 2025 2021 4% 8% 7% 3% 6% 5% 2% 1% 0% Forecast
national markets YOY rent & vacancy changes
Source: CoStar Group CITIES VACANCY RATE RENT GROWTH Atlanta 4.60% 11.50% Austin 7.20% 8.00% Chicago 4.00% 8.60% Cleveland 3.70% 7.20% Dallas-Fort Worth 7.10% 9.90% Denver 6.30% 5.80% Los Angeles 3.70% 8.50% Fort Lauderdale 3.70% 15.80% Jacksonville 4.70% 14.00% Minneapolis 3.00% 10.00% Nashville 3.60% 9.80% New York, N.Y. 4.90% 7.90% Orange County 2.60% 10.60% Phoenix 4.40% 14.50% San Diego 4.40% 8.70% Tampa 3.90% 13.70% Inland Empire 3.70% 11.60% Savannah 4.10% 11.80% Saint Louis 4.20% 8.60% Philadelphia 5.50% 11.70% Houston 6.20% 4.60% Seattle 5.00% 9.20% Columbus 5.40% 15.60% Charlotte 5.40% 14.20% Memphis 6.00% 9.80%
RENT AND VACANCY RATE Source: CoStar Group Rent Growth Vacancy Rate 14% 12% 18% 16% 10% 8% 4% 6% Inland Empire Houston Chicago Los Angeles Cleveland San Diego New York, N.Y. Seattle Orange County Columbus Saint Louis Phoenix Austin Tampa Memphis Atlanta Jacksonville Charlotte Denver Minneapolis Fort Lauderdale Nashville Boston
YOY
0% 2% 4% 5% 6% 7% 8% 3% Dallas-Fort Worth Savannah Philadelphia
rent rankings
MARKET RENT PER SF Source: CoStar Group $0 $5 $10 $15 $20 $25 San Diego Orange County Los Angeles Fort Lauderdale New York, N.Y. Seattle Austin Inland Empire Phoenix Denver Tampa Philadelphia Nashville Jacksonville Chicago Dallas-Fort Worth Charlotte Atlanta Houston Minneapolis Savannah Columbus Saint Louis Cleveland Memphis Market Rent
NATIONAL FUNDAMENTALS
Industrial real estate has become an increasingly attractive investment choice in the past few years. U.S. industrial rent growth remains near record highs at 9.1 percent on a year-over-year basis. However, quarterly gains have been moderating since mid-2022, accompanied by a rise in the national vacancy rate. CoStar Group’s forecast predicts that increasing new construction will further raise vacancy rates in 2023, leading to a deceleration in rent growth by the end of the year.
According to GlobeSt, the semiconductor industry has witnessed an unprecedented increase in manufacturing spending over the past decade, with an average annual growth in capital expenditure of 30 percent. While the demand for PC production declined following the pandemic, there is a rising need for semiconductors in artificial intelligence applications. Given the intense global competition and the increasing demand for AI chips, the semiconductor industry is projected to thrive and expand. This growth will significantly impact the commercial real estate (CRE) industrial sector as a whole, as the semiconductor industry will drive technological advancements and innovation for years
come.
DELIVERIES & DEMOLITIONS Source: CoStar Group 80 160 200 180 140 60 120 100 40 20 -20 0 -40 ■ Deliveries ■ Demolished ■ Net Deliveries Forecast 2022 2018 2017 2019 2020 2021 2026 2023 2024 2025
to
AVAILABILITY RATE Source: CoStar Group 2022 2018 2017 2019 2020 2021 2026 2023 2024 2025 6% 9% 10% 5% 8% 7% 4% 3% 2% ■ Specialized ■ Logistics ■ Flex ■ United States Forecast MARKET RENT PER SQUARE UNIT Source: CoStar Group 2022 2018 2017 2019 2020 2021 2026 2023 2024 2025 $14 $20 $22 $12 $18 $16 $10 $8 $6 ■ Specialized ■ Logistics ■ Flex ■ United States Forecast
Key takeaways – Top Performing Industrial Properties
Top-performing industrial properties encompass a range of sectors driven by evolving market demands.
• E-commerce fulfillment centers have experienced high demand due to the surge in online shopping, with notable players like Fulfillment by Amazon and FedEx Fulfillment leading the way.
• Data centers have also seen substantial growth as cloud computing and digital services continue to expand, with major providers including Google, Microsoft, Amazon, Facebook, and Equinix.
• Last-mile distribution centers are increasingly popular to meet the need for faster deliveries, with FedEx, UPS, and USPS leading the pack. Cold storage facilities have witnessed increased demand from the food and pharmaceutical industries, ensuring the safe storage of perishable goods.
• Industrial parks and flex spaces offer customizable solutions for various industrial needs, attracting a diverse range of tenants.
• Electric vehicle and semiconductor plants are expected to generate significant leasing activity, particularly in the Austin/San Antonio area, Phoenix, and the I-85 corridor.
Disclaimer:
This information has been produced by Matthews Real Estate Investment Services™ solely for information purposes and the information contained has been obtained from public sources believed to be reliable. While we do not doubt their accuracy, we have not verified such information. No guarantee, warranty or representation, expressed or implied, is made as to the accuracy or completeness of any information contained and Matthews REIS™ shall not be liable to any reader or third party in any way. This information is not intended to be a complete description of the markets or developments to which it refers. All rights to the material are reserved and can-not be reproduced without prior written consent of Matthews Real Estate Investment Services™.