Industrial Facilities

A normalized industrial sector sees demand and rents level off

The national vacancy rate last year was nearly double that of 2022.
Jan. 8, 2025
4 min read

The statistics say that demand for Industrial sector space has slowed. But new buildings keep popping up across North America.

Earlier this month, Ware Malcomb revealed that construction had been completed on a 270,738-sf industrial building in Mississauga, Ontario, which the firm designed to be zero-carbon ready, meaning that it can operate with net-zero carbon emissions without significant retrofits. CanFirst Capital Management developed the building, known as Meadowvale South, on 14 acres. It features 40-ft clear heights, 42 dock-level doors, two grade-level doors, 50- by 54-ft-deep bays and a 60-ft staging bay. The site can accommodate 226 cars, and has 12 EV charging stations and 37 trailer parking stalls. Contracting services were provided by Cecchini Group.

In the first quarter of 2025, the developer GO Industrial plans to demolish an office and light industrial building on a 9.4-acre parcel near Sky Harbor International Airport in Phoenix. GO and Clarion Partners bought that site recently with the intention to develop a Class A industrial building called Three Five Logistics (the site is located on 35th Street). The 159,305-sf building will include 32-ft clear heights, 27 dock-high doors, four drive-in loading doors, 47 trailer stalls, and 164 auto parking spaces. DRL Group is leading the design team on this project, whose GC will be chosen once the demolition is completed.

Across the country in Marysville, Ohio, 25 miles northwest from Columbus, the developer Opus Group last month began construction on a 250,829-sf multi-tenant speculative industrial building called 33 Commerce Center. The Class A facility on 18 acres is designed by Opus, the project’s design-builder and AOR, for light assembly and manufacturing. It will include 32-ft clear heights, 155 parking spaces, 24 docks, and 3,870 sf of office space. AST Engineering is the SE. 

Deliveries were way down from two years ago

CommercialEdge, in its December 2024 Industrial Sector report, estimates that more than 361 million sf of industrial space were under construction through November, with the pipeline experiencing its first month-over-month growth for the year. Only 330.7 million sf of industrial space were delivered last year (through November), significantly short of the 1.1 billion sf delivered between 2022 and 2023. 

Among the reasons for this softness in construction has been cooling demand. In November, states CommercialEdge, the national vacancy rate for industrial space stood at 7.5%, compared to 4% two years ago. This vacancy uptick appears to be affecting sales and rents. Through November, $54.6 billion in industrial transactions were recorded in 2024, versus $62.8 billion in 2023. (One bit of modestly good news: the average sales price rose 2.7% to $128 per sf.)

 

“The market is steady and reasonable,” said Peter Kolaczynski, CommercialEdge’s Director, about the national industrial sector. “The pullback in construction was inevitable and expected this year. As space gets absorbed in 2025 and 2026, we expect vacancy rates to plateau and the appetite for further development to pick up toward the latter part of the decade.”

In its report, CommercialEdge points out that the industrial sector was hampered by supply-chain disruptions that ranged from work stoppages at East Coast ports, a drought in Panama that snarled vessel traffic through the Panama Canal, and the collapse of the Francis Scott Key bridge in Baltimore.

Regionally, Midwest markets have seen minimal rent increases in this sector. Phoenix is the nation’s leader, by far, in its pipeline, with 24.01 million sf of industrial space under construction, followed by Dallas, Houston, Kansas City and Philadelphia. Atlanta’s pipeline nearly doubled, to 9.3 million sf, driven by data center construction. And the San Francisco Bay Area led the country in industrial sales per square foot, at $460, followed by the California markets of Orange County, Los Angeles, and the Inland Empire; and New Jersey (which led the country is rent growth). 

By total square footage, Chicago is the nation’s largest industrial market, but also one of the least expensive with the average sales price hovering at $94 per sf.

AI to the rescue

In its latest report on Industrial Real Estate trends to watch, JLL states that CRE teams are relying more than ever on data-driven decision making for cost control and operational efficiency. Artificial intelligence is transforming how organizations optimize employee development and productivity at a time when enhancing the frontline workforce experience is “crucial” to driving growth. (JLL cites information from PwC and the Manufacturing Institute that 36% of manufacturers had experienced high frontline worker attrition in the previous six months.)

Two-thirds of workers acknowledge the importance of developing AI skills, but more than half—51%—also say they need resources and guidance from their employers.

About the Author

John Caulfield

John Caulfield is Senior Editor with Building Design + Construction Magazine. 

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