Lack of space still driving industrial rents upward, especially in port markets

With industrial space still at a premium nationwide and demand remaining high, tenants in this commercial real estate sector continue to pay increasingly higher rents as available properties dwindle, according to the newest U.S. industrial report from Yardi Matrix.

The national vacancy rate for industrial properties was 4.1% in September, helping to drive average rents for in-place leases to $6.88 per square foot, up 5.8% over the past year. Rents are advancing even faster in markets near large ports. In Southern California, for example, rent-growth rates for high-end spaces have nearly doubled that growth.

Industrial rents in California’s Inland Empire, centered around Riverside and San Bernardino, soared 9.6% year over year in September, while in Los Angeles, rents vaulted 9.1% during the same period. Orange County, at 7.1%, also saw an elevated pace of rent growth compared to the national average.

Consequently, prices for new leases in these areas also have surged. The average cost of a Los Angeles industrial lease signed in the past 12 months was $17.39 per square foot, $5.90 more than market average. In the Inland Empire, it was $12.29 per square foot ($4.85 above the market average), while in Orange County, it was $17.36 per square foot ($4.71 higher than the local mean). 

The story was mostly the same near ports on the East Coast, with the New Jersey market seeing rents rise by 7.6% annually. Rents for newly signed leases in New Jersey averaged $11.60 per square foot, $2.63 higher than market average.

Meanwhile, each of the above markets have seen some of the country’s lowest vacancy rates, with the Inland Empire at 1.1%, Los Angeles at 2%, New Jersey at 2.5% and Orange County at 2.7%. New supply in these areas simply hasn’t been able to satisfy the extreme demand, even with large pipelines of new construction coming online. The Inland Empire, for instance, has 34.9 million square feet of industrial space under construction, or about 5.1% of total stock. Another 54.4 million square feet has been delivered since 2020. Yet the area still has a space shortage, with much of the market’s under-construction pipeline already leased.

Notably, some in-demand, centrally located Midwest logistics hubs have vacancy rates that rival the busiest port cities. Indianapolis and Columbus, Ohio (each of which sits on the busy Interstate 70 corridor) have vacancy rates of 2.3% and 1.9%, respectively. In-place rent growth in both cities, however, hasn’t surged quite as much because of large amounts of new supply. Indianapolis, which has seen 32.7 million square feet of deliveries over the past three years, has another 24.9 million square feet under construction. Columbus has 17.7 million square feet on the way, adding to the 22 million square feet delivered since 2020.


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