Even in the face of a weakening economy, including a potential recession, the year concluded as one of the strongest on record for the sector as demand for space continued to fuel rent growth.
Industrial rent growth maintained its upward climb in markets across the U.S., with national in-place rents for space increasing 6.5% year-over-year, and through port markets led the nation in both new leases and in-place rent growth, Chicago was among the top metros in terms of new construction.
In fact, Chicago is where much of all new supply is being focused—26 million square feet at year-end—along with a handful of other locations including Phoenix, Dallas-Fort Worth, Houston and the Inland Empire.
Nationwide, CommercialEdge reported more than 742.3 million square feet (4% of existing product) under construction at year-end, the preceding markets accounting for more than one-fourth.
Not only was Chicago a leader in new construction, but it also led charts in terms of sales volume, with a total of $3.78 billion at the end of November. It was not, however, the only market in the region to surpass the $1 billion mark: Indianapolis sales totaled $1.19 billion at year-end; the Twin Cities, $1.033; and Columbus, $1.031.
Finally, as for rent growth, it was Detroit that claimed the sharpest rent growth in the Midwest. With rents increasing 6.2% year-over-year, it ended the year as the second-priciest market in the region for in-place leases at $6.13 per square foot, outpacing the rate of $5.59 per square foot in Chicago. Chicago was No. 1 in the Midwest for new leases with an average of nearly $7.50 per square foot.
But just how long can the region’s hot streak continue? Can the same good fortune be expected from 2023? Buyers and sellers have pulled back in recent months due to a wobbly economy, and new construction starts were pulled back in the final months of 2022, reported CoStar.
That said, roughly 687 million square feet of space is under construction in the U.S.—the fastest pace of growth in more than three decades, based on the company’s latest report—including sizable manufacturing projects by the computer chip industry to drive national economic growth.
CoStar is tracking more than 18 electric vehicle, battery and semiconductor plants scheduled to open across the U.S. over the next few years, which are expected to generate millions of square feet of leasing.