Industrial Insights - August 2024
Signs of Growth
The industrial real estate market shows promising recovery indicators. Summer activity was slower than desired, but there are emerging growth signals. Third-party logistics companies are returning to lease new facilities, major corporations are renewing agreements, owner-operators are purchasing properties, and institutional investors are regaining confidence in underwriting lease rates and exit strategies.
Amazon's renewed expansion efforts demonstrate market momentum. The company increased cash spent on property and operating leases to $6.2 billion in the first half of 2024, compared to $5 billion during the same 2023 period. Amazon has expanded same-day delivery coverage to over 120 metropolitan areas and achieved its fastest Prime delivery speeds on record, with "more than 5 billion items arriving the same or next day globally — an increase of more than 30% year over year."
Tenants
Southern California exhibits significant lease rate disparity. Subleases and low-basis landlords undercut market prices, while new construction properties command premium rates through free rent incentives. Lease rates range from $1.25 to $2.52 gross rentable square feet for comparable building sizes.
Lease renewals dominate current activity at 75% of leasing volume. Tenants installing warehouse automation are extending terms to align with payback periods for installation projects. Large corporations are restructuring third-party logistics contracts to manage business transitions and evaluating insourcing versus outsourcing options.
Landlords
Prologis insights: The largest global industrial property owner reported net U.S. absorption of just 27 million square feet this quarter. The company noted that "available space intersecting with desire for cost containment" creates lower absorption across different submarkets and customer segments. Prologis expects continued headwinds before stabilization and eventual rate increases.
Rexford Industrial insights: Southern California infill market vacancy averages 3.9% with low volatility compared to national peers. The company's portfolio of 26,000 square-foot average space serves smaller tenants with more stable lease performance. Market rent growth shows divergence by submarket, from -5.5% in Inland Empire West to +1.0% in San Diego.
Investors
Rob Guthrie of Guthrie Development discussed industrial condo conversions and value-add strategies, emphasizing location importance and the benefits of small business property ownership. The conversation covered market challenges including fluctuating conditions and financing flexibility needs.
Owner/Users
Owner-occupied property purchases increased significantly this year. With anticipated Federal Reserve rate cuts, this segment is positioned for growth. Michael Schulte of Intralog offers guidance on optimizing warehouse organization and supply chain planning for property owners.
Personal Investment Opportunity
The author seeks multi-tenant industrial properties between 25,000-150,000 square feet across the United States for acquisition or partnership investment opportunities.
Call to Action
Market momentum is accelerating as conditions stabilize. Tenants should maximize available concessions while they persist. Investors are deploying capital with renewed confidence. Contact the team to discuss value-creation opportunities.
