Industrial Market Overview Report: Part One

SKIP AHEAD TO

• Major U.S. Industrial Markets
• U.S. Transportation and Warehousing Employment Is Stable Year Over Year but Down 1.7% From Post-COVID-19 Peak
• The Port of New York and New Jersey Regained Its Footing as the Second-Busiest Cargo Port in the Nation in March 2024
• The U.S. Vacancy Rate Reached Its Highest Level in Two Years as of the First Quarter of 2024 in the NCREIF Property Index
• The New York Federal Reserve’s Supply Chain Index Remains Below the Historical Average but Up From Most Recent May 2023 Low
• Warehousing Capacity Is Contracting for the First Time Since January 2023 as Inventories Rise

CompStak conducted an in-depth analysis of market statistics across eight major U.S. markets, with a special emphasis on the Los Angeles-Orange County-Inland Empire region. Leveraging CompStak’s comprehensive data, we’ve identified a trend of moderation in the industrial leasing sector. Our upcoming blog series will delve into these insights, providing a detailed exploration of the industrial real estate landscape.

Interested in exploring the full report? Find it here.

Major U.S. Industrial Markets

• U.S. Transportation and Warehousing employment is up from pre-pandemic levels but has declined 1.7% from the post-COVID-19 peak in July 2022.
• Total twenty-foot equivalent unit (TEU) volume is on the upswing at the nation’s major ports, with total TEU volume handled at the Ports of Long Beach and Los Angeles, combined, up 22.9% from Q1 2023, followed by an 11.7% increase for the Port of New York and New Jersey over the same period.
• Despite inflation remaining above target and elevated interest rates signaling that consumers may pull back, total retail sales are up year over year and e-commerce’s share of total retail sales ticked up for the eighth straight quarter, to a new peak since Q2 2020.
• Industrial effective rent growth across major markets is either peaking or has already peaked, with signs of softening emerging particularly in the Los Angeles–Orange County–Inland Empire market, where rents have declined by 14.6% from their peak in the first half of 2023.
• The industrial market’s softening is evident in a significant 12.9% decline in average lease term lengths for bulk transactions across the major market average, accompanied by a simultaneous rise in free months, leading to higher free rent ratios, indicating a shift toward more flexibility among tenants and landlords.
• Despite softening conditions in other aspects of leases, the average annual lease escalation has remained relatively high, showing only marginal declines from previous peaks, with a .01 percentage point decrease for deals smaller than 100,000 square feet and .03 percentage points for bulk industrial deals.

U.S. Transportation and Warehousing Employment Is Stable Year Over Year but Down 1.7% From Post-COVID-19 Peak

Nationally, manufacturing employment has generally been on an incline since its trough in April 2020 and surpassed the level in December 2019 as of June 2022. While it remains below levels reached before the Global Financial Crisis (GFC), it is up 1.2% from December 2019. Meanwhile, transportation and warehousing employment has been on a steady incline from the trough reached during the GFC (with the exception of the COVID-19 period). While U.S. transportation and warehousing employment is up 13.5% from December 2019, it is down from a post-COVID-19 peak in July 2022.

U.S. Manufacturing vs. Transportation & Warehousing Employment

The Port of New York and New Jersey Regained Its Footing as the Second-Busiest Cargo Port in the Nation in March 2024

Total TEU volume at the Port of New York and New Jersey narrowly outpaced totals at Long Beach in March 2024. Overall, port volumes are up across major U.S. ports year over year, with the most dramatic increase on the West Coast. Total TEU volume at the Port of Los Angeles and Port of Long Beach, combined, was up 22.9% from Q1 2023, while it was up by 11.7% for the Port of New York and New Jersey.

The U.S. Vacancy Rate Reached Its Highest Level in Two Years as of the First Quarter of 2024 in the NCREIF Property Index

In the National Council of Real Estate Investment Fiduciaries Property Index (NCREIF NPI), which reflects an index of institutional-grade assets, the U.S. industrial vacancy rate has risen for the past five consecutive quarters and now averages 2.5%, which reflects its highest level in two years. This average reflects an increase of 100 basis points since the fourth quarter of 2022 (its lowest level reached since the GFC) but remains substantially below the average in the first quarter of 2019 (3.3%).

The New York Federal Reserve’s Supply Chain Index Remains Below the Historical Average but Up From Most Recent May 2023 Low

The New York Federal Reserve’s Supply Chain Index is down 4.25 points from its December 2021 peak and up 1.66 points from its low. However, it has been creeping back up toward the historical average for the last nine months as pressures are beginning to build that may negatively impact the supply chain in upcoming quarters.

Warehousing Capacity Is Contracting for the First Time Since January 2023 as Inventories Rise

According to the Logistics Managers’ Index, warehouse capacity is contracting at an increasing rate, having fallen below 50.0 for the first time since January 2023, registering at 44.6 points in March, down by 8.2 points from February’s reading of 52.8, and down by 13.6 points from March 2023.

Relatedly, logistics managers also reported that warehousing utilization is down slightly year over year as utilization of warehousing space is not growing as fast as it once was. Still, the rate of warehouse utilization growth is increasing due to its value above 50.0, registering at 63.6 as of March 2024. However, managers expect a future increase in warehouse utilization as inventories rise. Inventories have been on the rise again, according to the Retailers: Inventories to Sales Ratio, which measures the number of months based on current sales to sell the inventory on hand. While still below pre-pandemic levels, the inventories-to-sales ratio increased to 1.32 in February, indicating that retailers have on average enough inventory to cover 1.3 months of sales—up from the April 2021 pandemic trough of 1.1 months—and reflects a 20% increase in months over this period.

Want complete insights? Download the full report here.