The industrial sector has rebalanced in 2024 and is again growing at a steady pace after experiencing softer demand as the pandemic-fueled e-commerce boom waned last year, according to a CommercialEdge market report for September.
Census Bureau figures show a 1.3% increase in e-commerce sales for the second quarter and 6.7% year-over-year growth, and the segment's share of core retail sales has reached its highest level since the peak of the pandemic. The industrial space also is being bolstered by a growing warehouse and storage sector, which has added nearly 25,000 jobs so far this year after shrinking 8.5% between May 2022 and December 2023. Reports that powerhouse Amazon is increasing its lease activity are a positive sign for the industrial sector.
However, the industrial real estate sector continues to face challenges related to the massive supply response to demand during the pandemic. More than 1.1 billion square feet were completed in 2022 and 2023. E-commerce fulfillment, which requires three times as much industrial space as traditional retail sales, should help absorb some of this supply and will remain a primary driver of industrial real estate in the near and long term, said CommercialEdge. Big Box retailers will also help drive the industrial sector, particularly Walmart, which is opening a number of distribution centers to compete with Amazon.
National in-place rents for industrial space averaged $8.11 per square foot in August, down four cents from July but up 7.2% year-over-year, the report found. In-place rents have increased the most along the coasts, with the largest gains in the Inland Empire, Miami, Los Angeles, New Jersey and Orange County.
Nearly 370 million square feet of industrial space was under construction as of August, representing about 1.9% of stock, the report said. This is a slower pace than between 2020 and 2023 when nearly 1.9 billion square feet of industrial space began construction. New starts are at 145.3 million square feet. Despite this slowdown, 2024 is on track to finish in line with 2019, when 196 million square feet of industrial space started construction.
Phoenix is an exception to the trend of slower industrial construction. The market has 36.8 million square feet underway, with 10.6 million square feet starting this year. The Dallas-Fort Worth pipeline ranks second in terms of square footage under development, with 16 million square feet in progress. Other markets with strong industrial construction activity include Philadelphia, Kansas City, Chicago and Memphis, according to CommercialEdge.
Industrial sales reached $36.9 billion through August, with properties trading at an average of $132 per square foot.