Logistics Industry Brief – Spring 2024

Trends and Insights on Industrial Real Estate by Experts in Multiple Markets

Year-over-Year Rental Rate Increases and Averages in Multiple Markets According to NAI Global’s Industrial/Logistics Team

CommercialEdge released data in association with a headline that said the first quarter of 2024 for the industrial market was on track to be its worst three-month period in a decade. Among the data points in the report, one caught our attention, in part because nationwide averages are so generic.

Nationwide rents through February increased by 7.6% year-over-year to an average of $7.74 per-square-foot in the U.S., including the blended asking rates for warehouse, distribution, manufacturing, logistics and flex real estate.

By comparison, 22 markets from NAI Global’s Industrial Council reported numbers from their respective markets, and unsurprisingly, numbers varied by submarket yet arrived at similar averages to CommercialEdge data.

For the 22 U.S. markets in which NAI Global offices supplied the same data points, nationwide rents through February increased by 7.81% year-over-year to an average of $9.04 per-square-foot, including the blending asking rates for warehouse, distribution, manufacturing, logistics and flex real estate. Here they are by sub-market.

• Northern Colorado: The 12-month average asking rent in Larimer and Weld Counties is $12.43 per-square-foot and the year-over-year rental increase is 2.9%
• Dallas/Fort Worth: average asking rate is $9.58 psf and up 7.7% YoY.
• Northern New Jersey: rent $13.94 psf and up 5.5% YoY.
• Charlotte, NC: MSA rent $9.19 psf and up 9.9% YoY.
• Columbus, OH: rent $7.84 psf and up 9.5% YoY.
• Philadelphia, PA: rent $10.38 psf and up 7% YoY.
• Baton Rouge/New Orleans, LA: rent $5.70 psf and up 14.6% YoY.
• Northern Indiana: rent $5.25 psf and up 4% YoY.
• Charleston, SC: rent $7.75 psf and up 7.4% YoY.
• Greenville, SC: rent $5.71 psf and up 8.4% YoY.
• Savannah, SC: rent $7.02 and up 8.4% YoY.
• Raleigh/Durham Research Triangle, NC: rent $9.08 psf and up 9.8% YoY.
• Baltimore, MD: rent $11.04 psf and up 8.5% YoY.
• Oklahoma City, OK: rent $8.26 psf and up 3.2% YoY.
• Tysons, VA (suburban Was. DC): rent $16.46 psf and up 7.04% YoY.
• Southern New Jersey: rent $11.50 to $13.00 and up 5% YoY but slowing (and starting to see free rent and other concessions).
• Atlanta, GA: rent $9.10 psf and up 6.4% YoY.
• Louisville, KY: rent $5.85 psf and up 19% YoY (of note, asking rents have increased 46% in the recent 3 years).
• Phoenix, AZ: rent $12.46 psf and up 13% YoY.
• Houston, TX: rent $7.20 psf and up 8% YoY.
• Chicago, IL: rent $7.45 psf and up 0.7% YoY.
• Allentown, Lehigh Valley, PA: rent $11.00 to $12.00 psf and up 6% YoY.

Source: Steve Pastor, Global Supply Chain, Ports & Rails Logistics Practice and Industrial Chairperson for NAI Global

In mid-March the Industrial Council held its final winter meeting to discuss some of the issues impacting industrial real estate activity and trends. Some of the highlights were noteworthy.

At the Trans-Pacific Maritime Conference in Long Beach, CA during the final days of February, Robert Gates, the former Secretary of Defense under Presidents GW Bush and Obama, told the audience in a keynote address that globalism as we have known it will not end, and that the world isn’t going away from China – which has been called “the world’s factory floor.” Rather, managing risk and regionalization will drive change in not only supply chain management but in other areas of business – the most obvious of which is manufacturing.

We’ve already seen this develop with nearshoring trends and the fact that U.S. imports from Mexico have increased 59% while our neighbor to the south has surpassed China as the #1 exporter to the U.S. Chinese-made products accounted for 13.9% of U.S. goods imported last year, down from 21.5% in 2015, according to Census Bureau data. Meanwhile, Mexico took over first place with its share rising 2 percentage points to 15.4%.

However, Mexico has its own risks as a production hub, including crime, insufficient water and electrical supply, and intense wage competition for workers skilled at assembling high-tech goods. Plus, Mexico’s labor force has shunned working excessive over-time hours – unlike workers in China, Vietnam and elsewhere. Moreover, Mexico’s labor force is largely unionized and also falls under guidance and rules from the USMCA (the trade pact that replaced NAFTA).

Unlike the rest of the U.S., Southern California and the Inland Empire in particular has a shortage of big-box industrial buildings, or logistics facilities over 800,000 square feet. While scouring the market for a client in a tenant representation assignment, Steve Pastor and Kim Kocur found there were 113 available buildings in the Inland Empire between 150,000 and 500,000 square feet, yet only four-or-five over 800,000 square feet. In much of the U.S., development of big-box industrial buildings has stalled as supply has exceeded demand.

In Dallas, for example, 67 million square feet of new industrial inventory has been delivered in the past 12 months, yet only about 24 million square feet has been absorbed. Some 31 million square feet of industrial buildings under construction are pre-leased, or just 33%, and there is an increasing delta on vacancy rates in Dallas. The overall market is currently 9.5% vacant, yet below 50,000 square feet, it is only 5% vacant. By contrast, Dallas industrial buildings over 500,000 square feet are showing a 15% vacancy rate.

In Columbus, Intel announced that it was once again delaying construction of its two new semiconductor plants. The company received $8.5 billion from the CHIPS Act. Its two projects are expected to cost upward of $28 billion. The delay is stunting much-anticipated growth and demand for industrial facilities that eventually would occupy space as part of Intel’s supply chain in the region.

In Virginia, so-called ‘land-baron’ Chuck Kuhn turned a sizeable profit on land recently when he sold a large tract of farmland in Prince William County to Microsoft for $465.5 million in early March. Kuhn had been gobbling up land in the correct anticipation that AI and power demand in general would drive competition to buy land to build data centers. According to NAI Global insiders, Kuhn paid $46 million in 2020 for the land Microsoft just acquired. That’s a 1,000 percent return-on-investment!

In Case You Missed It (other industrial news and notes from the first quarter):

• Home Depot acquired McKinney, Texas-based SRS Distribution for $18.5 billion. SRS has grown to become the largest distributor of roofing materials and building products in the U.S., with revenue in excess of $10 billion. The deal is seen by analysts as further proof that Home Depot is pivoting to do more business with professional contractors and builders. Home Depot, of course, is known for selling materials, tools and related goods to the DIY home improvement industry. Home Depot thinks it can bump revenue by as much as $50 billion by leveraging SRS’ existing business, with 760 stores and 11,000 employees and a fleet of 4,000 trucks that make deliveries to construction sites. Home Depot has around 4,000 locations.
• Blackstone sold $1 billion worth of industrial assets to Rexford Industrial Realty which equated to $322 per-square-foot. The combined portfolio of 48 properties – nearly all of which are in Los Angeles and Orange Counties (Rexford’s wheelhouse) are 98% leased. A prodigious acquirer, Rexford has a total pipeline of approximately $300 million of investment properties under contract or accepted offers, according to the REIT’s chief executive.
• EV Magnet Factory MP Materials has obtained a $58.5 million award after the U.S. Department of Energy conducted an evaluation of approximately 250 projects for their technical and commercial viability. MP Materials is using the money for constructing a new facility in Fort Worth, Texas, and has already broken ground. The IRS and Treasury issued the Section 48C Advanced Energy PRoject tax credit to MP Materials. The new 200,000 square-foot project is part of MP’s plan to invest $700 million over the next two years in restoring the U.S. rare earth magnetics supply chain. General Motors is MP’s foundational customer and will receive product supplies to bolster its North American EV production.