The current buzz word within commercial real estate might be “uncertainty,” but the industrial sector continues to perform well, according to the latest market report by CommercialEdge. Industrial rents have been steadily rising every month over the past year, reaching a record high of $7.15 per square foot in March.
Vacancy rates remain extremely low across the country at 3.9%—only seven out of the top 30 industrial metros have rates of 5% or higher—but the demand for space may decrease a bit as large companies adjust their distribution chains to handle increasing costs. For now, however, demand remains firmly positive, based on the report. While transactional activity has slowed down in all sectors, the price per square foot for industrial sales hit record levels in Q1 2023.
| March 2023 Average Rent | Avg Rate Signed in Last 12 Months | Vacancy Rate | Under Construction (Mil. SqFt) | YTD Sales Price PS | YTD Sales (Mil, as of 03/31) | |
| National | $7.15 | $9.24 | 3.9% | 636.6 | $134 | $7,668 |
| Chicago | $5.59 | $6.74 | 4.4% | 26.3 | $101 | $154 |
The Midwest’s slow growth can be attributed to an increase in inventory over the past few years, mainly due to the availability of more land for new projects. Indianapolis and Columbus had the highest proportion of ongoing development projects compared to their existing stocks, with 4.1% and 4%, respectively. In terms of total area, Chicago had the largest development pipeline with 26.3 million square feet, accounting for 2.6% of its overall inventory.
In terms of sales volumes, Cincinnati took the lead in the Midwest, totaling $288 million from January to March 2023, at an average rate of $180.30 per square foot. Chicago ranked second in sales volume, with transactions amounting to $154 million in the first three months of the year.
One of the biggest challenges remains the increase in interest rates, which has had a significant impact on pricing and the ability to refinance loans that were taken out when mortgage rates were lower. CommercialEdge reported that if properties are refinanced now, they could generate 20% to 25% less profit compared to when the loans were first originated.
