A surge in U.S. manufacturing. High interest rates that choked off deal activity. A clog in the development pipeline. These were all key trends in the 2023 U.S. industrial sector, according to CommercialEdge’s year-end National Industrial Report.
A positive development last year? Manufacturers, aiming to avoid the supply-chain disruptions they saw in 2020 and 2021, are increasingly relocating their operations to North America, according to CommercialEdge.
ComercialEdge also pointed to what it called a pivotal shift for U.S. trade: In 2023, Mexico overtook China to become the United States’s primary trade partner. According to the Census Bureau, October saw Mexico contribute 15.5% to the export volume, surpassing China’s 15%. At the same time, the production of electric vehicles and their batteries within the United States has triggered the establishment of numerous large manufacturing facilities in the Midwest — including in Michigan, famed for its auto sector — and Southeast.
In the financial landscape, the year 2023 witnessed a continuation of interest rate hikes, which exerted downward pressure on transaction volumes and new developments. This contrasts with the record-setting years of 2021 and 2022. Notably, industrial sales nationwide, as of November, amounted to $48.6 billion year-to-date, a stark decline from the $129 billion recorded in 2021 and $101.2 billion in 2022.
Despite the decline in sales volume, the average sale price of an industrial property experienced a modest increase of 6% in 2023, rising from $123 per square foot in 2022 to $130 this year.
Despite economic uncertainty, the industrial sector saw a substantial number of deliveries last year, with over 508 million square feet of space opening through November, a new record for a calendar year in CommercialEdge’s database. With a month’s worth of data still pending collection, CommercialEdge said that 2023 is poised to exceed the prior record of 506 million square feet of new deliveries established in 2022.
Expect the supply of new industrial properties to slow soon, though. CommercialEdge says that new industrial starts have fallen dramatically in 2023, which result in less new supply coming online in 2024.
CommercialEdge reported that 282.4 million square feet of industrial projects started in 2023. In comparison, 2022 saw 598 million square feet of new industrial construction starts.
National in-place rents for industrial space averaged $7.60 a square foot in November, a jump of four cents from October and up 7.7% year-over-year. The average rate for new leases signed in the last 12 months rose to $10.26 a square foot, $2.66 more than the average for all leases.
And in Michigan? Detroit’s average industrial rent stood at $6.66 a square foot as of November of this year. That’s up 3.6% from a year ago. The industrial vacancy rate in Detroit was 5.5% as of November, according to CommercialEdge.
CommercialEdge reported that Detroit saw $469 million worth of industrial sales as of November. That figure has dropped thanks to the impact of higher interest rates.