Is the Industrial Market is Overheated?

The Real Estate Espresso Podcast

Is the Industrial Market is Overheated?

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Introduction to Industrial Market is Overheated

In today’s blog, we shall explore insights into a boiling concern, the ‘overheated industrial market’.

A State of Concern

Over the last few years, warehouses and manufacturing spaces have been the darlings of commercial real estates. However, recent observations suggest an overheating of the industrial segment. Brokerage house JLL reports continual normalization and somewhat deterioration of industrial fundamentals since their pre-pandemic peaks in Q1 2024.

Deep Dives into Markets

Market reports reveal a slowing down in pre-leasing and overall leasing coupled with higher average deliveries, causing the vacancy rate to inch up across the nation. Deteriorating conditions are particularly acute in some of the largest markets for industrial such as Dallas-Fort Worth, Los Angeles, inland empire near San Bernardino, Chicago, New Jersey, and Orlando.

Market	Vacancy Rate	Asking Rent
Dallas-Fort Worth	Exceeding 12%	$7.34/sq ft
Los Angeles	Up from 1% in 2021 to over 5%	$1.55/sq ft
Chicago	Leveled off at 4.5%, up from 3% in 2021	$750/sq ft
New Jersey	Negative absorption of 2.4 million sq ft	$16.50/sq ft
Orlando	Ticked up to 9%	$9.10/sq ft

Conclusion

Investors venturing into existing industrial markets need to tread with caution. Oversaturation by developers with new supply on a nationwide basis implies that older buildings attracting higher asking rents may not persist in the long term due to competition with newer, more efficient facilities. Consequently, it is imperative that investors assess the difficulty associated with moving facilities, the remaining lease time on existing facilities, and the creditworthiness of the tenant before making a decision. In essence, while the industrial market exhibits signs of being overheated, strategic decision making can still yield positive outcomes.

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