New Year, New Horizons: Exploring The Top Growing Industrial Markets of 2023

Each new year brings a perfect time for introspection and strategic planning. An invaluable exercise for proactive commercial real estate investors involves conducting a concise analysis of markets nationwide. This systematic approach enables investors to monitor growing markets and those facing challenges, offering valuable insights for identifying potential investment opportunities or areas to exercise caution. To assist with this research, Legacy West Partners has gathered data from the sixty-three industrial markets with an asset value exceeding $10B, as defined by CoStar¹, to track important year-over-year changes. While each metric used to measure growth is a snapshot of a market’s story, they may collectively serve as launching points for investors undertaking more in-depth research.

Inventory Growth

The first metric of growth highlighted by our partners pertains to the year-over-year expansion in inventory square footage within each industrial market. As shown below, the growth in inventory in Savannah, GA far outpaced any other market in the U.S. relative to its size in the preceding year at a 20.75% increase from around 102 million square feet to 123 million square feet. Significant additions like the 2.8 million square foot Lowe’s distribution center and the over 1.3 million square foot Bradshaw Home’s distribution center are a result of the growing demand for this East Coast distribution hub. Savannah supports a growing and active port as well as serves as the intersection point for I-95, I-16, and U.S. railroad systems. Austin, TX recorded the next highest increase in inventory square footage at 9.73%. The majority of Austin's additions in the past year were not characterized by large-scale buildings, with the lone addition surpassing 500 thousand square feet being a 522 thousand square foot structure constructed for SpaceX. Charleston, Phoenix, and Dallas-Fort Worth followed closely behind with increases of 7.76%, 7.62%, and 6.51%, respectively. Considering the sixty-three markets as a whole, the average increase stood at 3.01%, underscoring the substantial differentials observed in the top five markets, which surpassed double the average growth rate.

1. Savannah, GA +20.75% [+21M SF]
2. Austin, TX +9.73% [+13M SF]
3. Charleston, SC  +7.76% [+7.7M SF]‍
4. Phoenix, AZ  +7.62% [+32M SF]‍
5. Dallas-Fort Worth, TX  +6.51% [+71M SF]

Market Rent Growth

A pivotal indicator of market growth lies in the annual growth of market rents. Like the previous metric, one specific Southern market emerged as a standout amidst its counterparts—Orlando, FL. With a 12-month market rent per square foot growth of 13.83%, Orlando was the sole market tracked to achieve a growth rate close to twice that of the average, 7.34%. Following Orlando, the next highest performers in terms of market rent growth were Phoenix, Providence, Tampa, and Jacksonville, registering growth rates of 11.92%, 11.86%, 11.72%, and 11.65%, respectively. The preeminence of Florida markets in this category is particularly evident, driven by robust tenant demand. Even with this unbelievable market rent growth, vacancy rates in these Florida markets still hover below 5%. It is noteworthy to highlight that Pittsburgh, PA was the lowest growing industrial market according to 12-month market rent growth, recording a growth of only 1.29%. This slow growth has kept demand relatively steady in Pittsburgh with a vacancy rate of around 5.6% and a 12-month net absorption exceeding 1.5 million square feet.

1. Orlando, FL  +13.83%
2. Phoenix, AZ  +11.92%
3. Providence, RI  +11.86%
4. Tampa, FL  +11.72%
5. Jacksonville, FL  +11.65%

Market Sale Price Growth

The next metric under consideration is the year-over-year change in the market sale price per square foot. Across the sixty-three markets surveyed, the average year-over-year change in market sale price held steady, with a minimal decrease of just -0.25%. The standout market was Jacksonville, FL with an increase of 7.90% which added around $1.2 billion in asset value according to CoStar. Similarly, Orlando, FL emerged as another high-performing market, recording a commendable 5.39% increase. Salt Lake City, Tampa, and Charlotte closely followed suit with respective increases of 4.94%, 4.70%, and 4.00%. Once again, Florida markets asserted their dominance in this metric. Conversely, three markets experienced the most significant decreases in market sale price: San Francisco, Pittsburgh, and East Bay, with declines of 8.13%, 5.80%, and 4.82%, respectively.

1. Jacksonville, FL  +7.90%
2. Orlando, FL  +5.39%
3. Salt Lake City, UT  +4.94%
4. Tampa, FL  +4.70%
5. Charlotte, NC  +4.00%

Industrial Employment Growth

The final metric looked at by our partners was each market’s industrial employment growth year-over-year. This metric also showed a low average growth of all markets with 1.08% growth year-over-year. However, several markets surpassed this average. Leading this category was Austin, TX, which experienced a remarkable 5.00% growth in industrial employment, translating to the addition of approximately 7,600 employees. Following closely were Louisville and Charleston, with growth rates of 4.65% and 4.23%, respectively. The fourth largest growing market by industrial employment was Dallas-Fort Worth at 4.03%, closely followed by Raleigh at 3.81%. Memphis showed the most substantial decrease in industrial employment at 2.36%, with Fort Lauderdale and San Francisco closely behind at 2.22% and 2.20%, respectively.

1. Austin, TX  +5.00% [+7.6K Employees]
2. Louisville, KY  +4.65% [+5.4K Employees]
3. Charleston, SC  +4.23% [+2.2K Employees]
4. Dallas-Fort Worth  +4.03% [+20K Employees]
5. Raleigh, NC  +3.81% [+3.1K Employees]