Multibillion-dollar semiconductor and electric vehicle (EV) facilities under construction across the nation are propping up the industrial sector as logistics demand and e-commerce sales growth have returned to prepandemic levels.
Although in-place rents are up 7.6% year over year to an average of $7.45 per square foot in August and the 4.4% vacancy rate is the same as the previous month, construction starts have dropped by a third, according to CommercialEdge's September National Industrial Report.
Construction starts have dropped from 614.1 million in 2022 to 204.3 million this year, according to the report. Nearly 567 million square feet of industrial space was under construction nationwide.
It’s become riskier to develop speculative industrial properties because of inflation pushing material and labor costs higher as well as general economic uncertainty. Even so, the long-term outlook for industrial development remains positive.
Average Rent By Metro
| Market | August average rent per square foot | 12-month change | Average rate signed in last 12 months | Vacancy rate |
| National | $7.45 | 7.6% | $9.91 | 4.4% |
| Inland Empire | $9.13 | 19.2% | $18.44 | 3.3% |
| Los Angeles | $13.18 | 11.8% | $20.24 | 4.6% |
| Orange County | $14.05 | 10.5% | $19.41 | 3.9% |
| Boston | $9.78 | 10.4% | $10.39 | 7.4% |
| Miami | $10.48 | 10.1% | $15.17 | 4% |
| New Jersey | $9.91 | 9.3% | $14.31 | 6..1% |
| Bridgeport | $8.53 | 8.9% | $10.32 | 2.6% |
| Seattle | $10.44 | 8.5% | $13.21 | 4.1% |
| Portland | $9.12 | 8.3% | $11.26 | 4.4% |
| Phoenix | $8.31 | 7.9% | $10.18 | 3.2% |
| Bay Area | $12.48 | 7.3% | $19.48 | 3.8% |
| Nashville | $5.84 | 7% | $8.58 | 2% |
| Dallas-Ft. Worth | $5.60 | 6.9% | $7.30 | 3.9% |
| Philadelphia | $7.35 | 6.7% | $9.13 | 4.2% |
| Atlanta | $5.40 | 6.5% | $6.33 | 3.5% |
Source: CommercialEdge
Industrial space is still under construction across the country, but most of it is concentrated in a few markets. The top 15 markets account for more than half of all completions this year, with Dallas being the most active for deliveries at 32.1 million square feet — nearly double second-place Phoenix at 17.4 million.
Houston had the third most deliveries at 14.6 million added through the end of August. Most of the space is new builds and expansions to existing properties in the city's logistics parks.
Supplier networks to serve the massive semiconductor and EV facilities will drive additional development in locations like Phoenix; Austin, Texas; Columbus, Georgia; and South Carolina.
"As development expectedly slows down, there will still be immediate bright spots in locales supporting these massive semiconductor and EV manufacturing projects," CommercialEdge Senior Manager Peter Kolaczynski said. "Based on the current slowdown coupled with future demand drivers, we're projecting increased competition for space and the need for future deliveries three to five years out."
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