The U.S. industrial market saw record new deliveries in 2022, with 450 million square feet of space hitting the market by the end of the year and another 713 million square feet under construction, according to Commercial Edge’s January industrial report.
Although record levels of new industrial space were delivered last year, the pace of development was not enough to keep up with demand, and the average vacancy rate for the top 30 markets decreased to 3.9%.
“Even as demand waned slightly the last third of the year, the appetite for these new, high-quality facilities was incredibly strong throughout 2022,” said Peter Kolaczynski, senior manager for Commercial Edge.
The markets with the most supply delivered last year were Dallas, 31.5 million square feet; Indianapolis, 24.8 million; Chicago, 23.4 million; Phoenix, 21.3 million and California’s Inland Empire, 20.4 million. Industrial development was widespread across the country, but the top five markets accounted for 27% of all new stock in 2022.
Dallas also led the nation in development with a 64 million-square-foot pipeline as well as sales volume of $8.8 billion.
Other key findings from the Commercial Edge report include:
- National industrial in-place rents averaged $7.03 per square foot, up 6.3% year over year as demand continued to outpace supply.
- The national vacancy rate contracted 180 basis points in 2022 as new deliveries were absorbed at a rapid pace.
- The year ended with $88 million in industrial sales, a robust volume but one that was noticeably below 2021 totals.
The Inland Empire led the nation in industrial rent growth, with rates increasing 14.2% over the last 12 months, with Los Angeles coming in second at 10.4% and Orange County fourth with 7.3% growth over the last 12 months.
The demand for industrial space in California is so high that it’s spilling over into Phoenix, a six-hour drive from the ports of Los Angeles and Long Beach. Phoenix rents have grown 7.1% over the past 12 months, and demand shows no signs of slowing — projects planned for the metro area will increase the stock by 20.8%.
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While industrial development was on fire throughout 2022, deal flow slowed in the second half of the year.
There were $88.3 billion in industrial transactions, although a lag in collecting data means the numbers will continue to rise. Even so, last year will come in under the $125.7 billion in transactions closed in 2021.
Sales were up year over year in the first half of 2022 but dropped dramatically in response to Federal Reserve rate increases. Although rising interest rates were the main reason sales volume fell, industrial properties are more costly than they were a few years ago, giving investors pause. The average sales price of an industrial building has shot up 57% from $83 per square feet in 2021 to $132 in 2022.
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