Blooming Markets: Q1 2024 Industrial Review

Each new quarter brings new opportunities for reflection for commercial real estate owners. Regular analysis of market data allows for investors to keep tabs on newly emerging markets or markets with stagnant growth. To assist with this review, 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 quarter-over-quarter (2024 Q1 vs. 2023 Q4) and year-over-year (2024 Q1 vs. 2023 Q1) changes. Importantly, any one metric should not be used to evaluate a market in its entirely; rather, each metric can be used to spur further research into specific markets of interest. Additionally, quarterly measured changes can be highly variable due to their shorter timeframe. It is important to note that quarterly changes are less stabilized compared to yearly changes, and should be considered with a critical eye.

Market Rent Growth

The first and one of the most important metrics to measure market growth is market rent growth. As a whole, the average market rent growth was solid over the past year at 6.07%, but slowed down drastically to 0.87% over the past quarter (3.48% annualized). Top achieving markets this quarter included Nashville, Orlando, Tampa, Columbus, and Richmond, all falling in the low to high 2% growth range. As the top performer, Nashville's market rent grew an impressive $0.30/SF over the quarter from $10.91/SF to $11.21/SF. The markets with the highest growing rents over the past year include Orlando, Tampa, Jacksonville, Phoenix, and Columbus. Florida markets maintain their stronghold on rent growth, occupying the top three positions. Orlando, again, was the only market to achieve over double the average market growth of 6.05%. San Jose was the only market to have a negative rent growth over the past year at -0.35%. The decrease in this market could be due to many factors including that San Jose has the 2nd highest market rent in the nation at $25.56/SF/YR and a growing vacancy rate at 7.1%.

Quarter-over-Quarter

1. Nashville, TN  +2.75% [+$0.30/SF]
2. Orlando, FL  +2.71% [+$0.37/SF]
3. Tampa, FL  +2.44% [+$0.30/SF]
4. Columbus, OH  +2.15% [+$0.17/SF]
5. Richmond, VA  +2.12% [+$0.19/SF]

Year-over-Year

1. Orlando, FL  +13.09% [+$1.62/SF]
2. Tampa, FL  +11.01% [+$1.25/SF]
3. Jacksonville, FL  +10.77% [+$1.04/SF]
4. Phoenix, AZ  +10.25% [+$1.27/SF]
5. Columbus, OH  +10.08% [+$0.74/SF]

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Inventory Growth

The next metric under consideration is each market's inventory growth. Savannah continued to dominate inventory growth over both the past quarter and year, far outpacing the other leaders in this category. The top growing markets by inventory this quarter include Savannah, Charleston, Las Vegas, Phoenix, and Richmond. The average inventory growth over the past quarter was well below the market leaders at 0.64%. Average inventory growth was at a slightly higher rate over the past year at 2.95% (0.74% per quarter on average). The market leaders in inventory growth over the past year are similar to the quarterly result with Savannah, Austin, Phoenix, Charleston, and Dallas-Fort Worth at the top.

Quarter-over-Quarter

1. Savannah, GA  +3.11% [+3.86M SF]
2. Charleston, SC  +2.38% [+2.54M SF]
3. Las Vegas, NV  +2.27% [+3.99M SF]
4. Phoenix, AZ  +2.20% [+9.92M SF]
5. Richmond, VA  +1.88% [+3.04M SF]

Year-over-Year

1. Savannah, GA  +19.46% [+20.8M SF]
2. Austin, TX  +9.52% [+13.1M SF]
3. Phoenix, AZ  +9.17% [+38.8M SF]
4. Charleston, SC  +7.58% [+7.69M SF]
5. Dallas-Fort Worth, TX  +6.01% [+66.1M SF]

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Vacancy Rate Change

The change in each market's vacancy rate is an important metric, especially when compared to their changes in inventory. A good signal of a strong market could be a stable vacancy rate even with a large amount of development in the area. Another market to keep an eye out for would be locations with low vacancy and little development, pointing to a continual shortage of supply. The top performing markets over the past quarter were the only five to achieve a decrease in vacancy rate; these include Austin, Denver, Stockton, Oklahoma City, and Philadelphia. Average vacancy change over the past quarter showed a slight increase of 0.53%. The largest growers in vacancy rate over the past quarter include Charleston, Las Vegas, Reno, and Savannah, with changes of 2.80%, 2.30%, 1.85%, and 1.35%, respectively. These markets line up closely with those who had significant inventory additions. The average vacancy change over the past year hovered around 1.88%, with only one market, Detroit, showing a decrease in vacancy. Top performing markets in terms of vacancy rate change over the past year included Detroit, Grand Rapids, Honolulu, Jacksonville, and Providence. The worst performing markets were Savannah, Charleston, and Phoenix, at 9.57%, 5.54%, and 5.33%, respectively.

Quarter-over-Quarter

1. Austin, TX  -0.56%
2. Denver, CO  -0.40%
3. Stockton, CA  -0.15%
4. Oklahoma City, OK  -0.10%
5. Philadelphia, PA  -0.03%

Year-over-Year

1. Detroit, MI  -0.03%
2. Grand Rapids, MI  +0.10%
3. Honolulu, HI  +0.15%
4. Jacksonville, FL  +0.15%
5. Providence, RI  +0.16%

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Industrial Employment Growth

Industrial employment growth can signal the strength of a market's workforce, along with the strength or mindset of companies in that market or the desire for those companies to be in the market. The top performers for industrial employment growth over the quarter included Palm Beach, Reno, Fort Lauderdale, Miami, and Tampa. Over the past quarter, the six Florida markets had an average industrial employment growth of 0.51% with the overall average sitting at 0.16%. The fastest growing industrial employment markets over the past year included Austin, Louisville, Charleston, Dallas-Fort Worth, and Raleigh, with each of these top markets lying within the Southern region. The average growth over the past year was relatively low compared to market leaders, at 0.82%, due to the twenty-one markets that had a decrease in industrial employment.

Quarter-over-Quarter

1. Palm Beach, FL  +0.63% [+401 Employees]
2. Reno, NV  +0.62% [+329 Employees]
3. Fort Lauderdale, FL  +0.59% [+467 Employees]
4. Miami, FL  +0.56% [+545 Employees]
5. Tampa, FL  +0.55% [+946 Employees]

Year-over-Year

1. Austin, TX  +4.95% [+7.5K Employees]
2. Louisville, KY  +4.47% [+5.2K Employees]
3. Charleston, SC  +3.81% [+2.0K Employees]
4. Dallas-Fort Worth, TX  +3.49% [+19.2K Employees]
5. Raleigh, NC  +3.44% [+2.8K Employees]

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Population Growth

The final metric our partners have highlighted is population growth. The leaders in population growth remained unchanged over the past quarter vs the past year. These leaders included New York, Salt Lake City, Seattle, Orlando, and Austin.

Quarter-over-Quarter

1. New York, NY  +0.43% [+62.4K]
2. Salt Lake City, UT  +0.42% [+5.4K]
3. Seattle, WA  +0.38% [+15.8K]
4. Orlando, FL  +0.37% [+10.5K]
5. Austin, TX  +0.37% [+9.2K]

Year-over-Year

1. New York, NY  +1.71% [+247K]
2. Salt Lake City, UT  +1.69% [+21K]
3. Orlando, FL  +1.55% [+43K]
4. Seattle, WA  +1.51% [+61K]
5. Austin, TX  +1.51% [+37K]