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Still Hot, Just Not 'Blistering': U.S. Industrial Market Starting To Look Like 2019

Few things in real estate will ever go back to their pre-pandemic normal, but after three years of breathless expansion and record-setting growth, that’s where industrial property is headed.

The country’s biggest industrial REITs posted strong results in their Q4 earnings, and leasing brokers have filled hundreds of millions of square feet basically as soon as construction is finished. Neither of those dynamics is expected to shift dramatically, but as 2023 progresses, industry leaders predict a market more closely resembling that of 2019.


“We are coming off the best back-to-back years of new industrial leasing activity that we've ever tracked across the U.S., including a blistering pace of absorption, just not sustainable long-term,” Cushman & Wakefield Senior Research Director of U.S. Industrial & Logistics Jason Price told Bisnow.

“In 2023, we expect leasing activity should return to more 'normalized' levels which we saw earlier in the expansion cycle — pre-pandemic — before the industrial market began smashing records across the board these past few years,” Price said.

Even as the rest of CRE buckles up for a rough year of stagnant markets and stalled deals, industrial developers are barely fazed, expecting, at worst, to be returned to the impressive profit and occupancy levels they enjoyed in the decade leading up to the pandemic.

Landlord First Industrial demonstrated the strength of the market emerging from its best years in recorded history during its fourth-quarter earnings call Feb. 9. The company’s 68.9M SF portfolio is a record 98.8% occupied, up from 98.1% the year before. 

And First Industrial notched rental rate increases of about 33% on leases beginning in 2023, reflecting about half of the leases that will roll over this year.

“The number of prospects for new spaces is down a little bit, and I would say we're looking at a normalization of demand, probably back to 2019 days,” First Industrial Chief Investment Officer Johannson Yap said. “We're hearing from the brokerage community that demand will be there. It's going to be a pretty active market.”

Likewise, Rexford Industrial reported 98% occupancy for its properties, with same-facility net operating income growth in the fourth quarter of 7.3% compared with a year earlier. Comparable rental rates on 5.1M SF of new and renewed leases increased by 58.8% on a cash basis, the company reported.

The REIT is active exclusively in Southern California, which Rexford co-CEO Michael Frankel said had the highest year-over-year rent growth of any U.S. industrial market. Industrial space there has the benefit of proximity to the country’s two largest ports in Los Angeles and Long Beach.

“Infill Southern California continues to experience a virtually incurable supply-demand imbalance due to the extreme scarcity of land and development constraints,” Frankel said during the company's earnings call.


Rexford expects roughly 15% in rent growth in 2023, Chief Financial Officer Laura Clark said on the earnings call.

“We've seen activity pick up since the beginning of the year, and have seen activity on about 90% of our vacant space,” she said. “And while one month doesn't make a trend, we've seen rent growth of about one and one-half percent over the month.”

The biggest industrial REIT in the game, Prologis, expressed similar sentiment on its earnings call last month, saying that even if absorption ceased, its occupancy would fall to 95%.

Numbers like those are common across the country. The U.S. industrial market enjoyed its second-highest total for overall net absorption in 2022 at 477.3M SF, down from 561.4M SF in 2021, according to a Cushman & Wakefield report.

The U.S. industrial vacancy rate ticked to 3.3% in the fourth quarter, Cushman & Wakefield reported, up 20 basis points quarterly. Still, vacancy is 1.4% lower than it was before the pandemic, and 3% lower than its 10-year average of 6.5%.

In the fourth quarter, the average industrial asking rental rate hit $8.81 per SF, up roughly $1.40 per SF from a year earlier.

However, it’s not all smooth sailing for the industrial market. 

Heightened demand naturally brings with it a faster pace of development, with 632.3M SF of industrial under construction at the end of 2022, but projects in some high-volume areas are drawing pushback from neighbors. 

In the Inland Empire, the country’s biggest warehouse market, residents have had enough with industrial development. In August, the cities of Norco and Pomona, California, voted in favor of halting development of these projects for 45 days and 10.5 months, respectively. And in January, a gathering of 60 groups sent a letter to Gov. Gavin Newsom, asking him to take action against industrial development.

So far, most of these efforts have generally had little effect, Boyd Co. principal John Boyd told The Wall Street Journal last April, but they can complicate the planning process and make developments more expensive.

In North Carolina, a proposed 1.7M SF warehouse facility in west Mecklenburg County raised the ire of residents, who in October urged officials to block the development, citing quality-of-life issues. In January, however, the Charlotte City Council approved a rezoning request from Beacon Partners and Crescent Communities for the site.

In metro Boston, resident pushback has been enough to delay some projects, according to panelists at Bisnow’s Innovating & Developing Boston’s Industrial Market event earlier in February.

“The neighborhoods you live in can be very anti-warehouse development,” GLP Managing Director Oscar Wong said during the event, though he added that can be good for owners of existing properties. “There are a lot of supply barriers, which kind of creates a very healthy environment for rental rate growth."