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Top 10 Fastest-Growing Markets for Industrial Real Estate Investment in 2022
Commercial Real Estate Loans examines the 10 U.S. industrial markets where transaction volumes have grown the fastest.
Industrial real estate, despite worsening macroeconomic conditions, is largely still performing. Rent growth hit 5.8% over the year through September nationwide, though growth has been uneven, according to Yardi Matrix data.
Distribution facilities within a day’s drive of major population centers have seen the most upside, both for rental revenues and property values. What is more, a dire shortage of modern space has compressed vacancies to all-time lows, further compounding gains.
Industrial real estate investment has increased significantly this year. More than $180 billion of deals closed during the 12 months ending in September, according to CBRE’s third-quarter report on U.S. Capital Markets. That’s an impressive 31% gain from the previous period — but not all markets have experienced the same boost in investor activity.
Below we examine the top 10 markets across the country with the largest gains in total investment volume during the 12 months ending in September. We compiled the list using the CBRE report mentioned above, and provided additional analysis to reveal what's driving growth in these markets.
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Top 10 Fastest-Growing Industrial Markets
Rank | Market | Investment Volume ($B, 12 months ending in September 2022) | Year-over-Year Growth |
|---|---|---|---|
1 | Lehigh Valley | $1.54 | 151.8% |
2 | Washington, D.C. | $5.39 | 139.9% |
3 | Columbus, Ohio | $2.32 | 108.2% |
4 | Orlando, Fla. | $1.75 | 101.1% |
5 | South Florida | $5.12 | 79.4% |
6 | Denver | $2.44 | 71.6% |
7 | San Diego | $3.44 | 54.9% |
8 | Phoenix | $6.37 | 53.7% |
9 | Indianapolis | $3.21 | 49.4% |
10 | Chicago | $9.02 | 48.1% |
10. Chicago
One of the largest industrial real estate markets in the country, Chicago, has drawn heavy investment activity this year. Total industrial property sales surpassed the $9 billion mark during the 12 months ending in September. That’s nearly a 50% uptick from the previous period.
Why Chicago? Well, for one, the market’s location in the heart of the Midwest serves as a key advantage, especially when considering the importance of reducing shipping distances to distributors. This is clear when looking at who’s leasing space — third-party logistics companies had the largest chunk of leasing activity in the third quarter, according to a report from JLL.
9. Indianapolis
Indianapolis, just a three-hour drive south of the Windy City, takes ninth place on our list. Although the market is a fraction of Chicago's size, total sales hit $3.2 billion through September — a 49.4% increase compared to the same time frame in 2021. Pricing per square foot has typically been around 10% lower than in Chicago, and given the Indiana capital’s position, a stone’s throw from the largest population centers in the Midwest, it’s unsurprising that investors have flocked to Indy.
After all, tenants have been moving there for years, pursuing lower rental rates. However, demand — like in much of the country — is vastly outpacing supply. As a result, leasing costs are climbing: A Colliers report shows that average direct asking rates for triple-net leases jumped 5.5% between the second and third quarters this year.
8. Phoenix
With $6.4 billion transacted through September, a 53.7% increase from last year, Phoenix gets an awful lot of attention. But the focus isn’t limited to its industrial real estate realm. Arizona’s capital has been in the spotlight for strong multifamily growth on the back of massive population growth and corporate relocations, too.
There are a few reasons underpinning Phoenix’s growth into an industrial powerhouse. The population growth has certainly had an impact — more people equals more customers to ship to, after all. But it’s not limited to that. Consider the metro’s location: Southern California, Nevada, New Mexico, and even Texas aren't so far down the road. Plus, the abundance of developable land offers something Southern California can’t — and at a fraction of the cost. As a result, development activity — both speculative and build-to-suit — has soared.
7. San Diego
Speaking of Southern California, San Diego makes our list, ranking seventh with $3.4 billion in investment activity, up about 55% from 2021. The market has flourished in recent years — as a function of its lower costs compared to the nearby Los Angeles area. But that’s not all: Its key location at the border, San Ysidro, is one of the busiest points for cross-border cargo shipments.
In spite of that, San Diego has seen a slight uptick in vacancy for industrial space at the market level. Amazon releasing some of its leased space has contributed to this, and it remains to be seen how quickly available space will be leased up. However, in the near term, expect rents, currently at all-time highs, to soften a bit.
6. Denver
Denver has been a major focal point for commercial real estate investors for some time. And not just for industrial properties, either. Multifamily and office assets have historically performed well, especially as the metro has pulled a number of major employers — and, often, significant employee populations — eastward from California, citing lower business costs and higher qualities of life.
In terms of its industrial market, the metro had $2.4 billion in deals through the year ending in September. That’s a major, 71.6% increase from the previous year. Expect investment to continue soaring, too: With rents up nearly 12% year-over-year through September, and insufficient new supply underway, the market has likely not hit its peak.
5. South Florida
South Florida lands in fifth place on our list, with $5.1 billion in industrial properties transacted, an increase of nearly 80% from 2021. Looking at market indicators, it's east to see why: Rents grew by an incredible 20.7% over the year, according to Savills. That’s faster growth than nearly any other market nationwide.
However, it’s unlikely for such rapid rent growth to continue, especially given the incoming economic headwinds. Vacancy fell from 4.6% to 3.5% in the past year, but at the same time, absorption hit its lowest level since mid-2020 in the third quarter. That said, leasing activity is still going strong, so the next quarter’s activity will likely better inform any longer-term projections.
4. Orlando
Heading further north, Orlando takes fourth place on our list. While the market’s $1.8 billion in transactions may seem unimpressive, its growth is anything but. Total investment activity increased more than 100% through the third quarter compared to the same time in 2021.
So, what’s going on in Orlando? Simple supply-and-demand dynamics have been responsible for much of the frenzy. Rents climbed 5% quarter-over-quarter through September, according to Avison Young, and the report cites a dearth of available space. True, vacancy sat at 3.9% at the end of the quarter, but much of this remaining space is dated — and with modern distributors seeking high-end logistics space, significant leasing activity is likely to be bottled up as tenants await the completion of the 7.4 million square feet under construction.
3. Columbus, Ohio
Right in the center of Ohio, Columbus lands third on our list, with $2.3 billion in investment transactions through September, a stunning 108.2% increase compared to the same time last year. Surprised Columbus made the list, given its size? The market-level metrics bear out the performance: The market has one of the lowest vacancies nationwide, at 2.1% in September, a JLL report notes.
But this may not last. Smaller markets do tend to be a bit more volatile — and it takes far less for development to catch up to demand. That may be what’s happening now. There’s currently 16.8 million square feet of industrial projects under construction in Columbus, and nearly one-third of that kicked off in the third quarter. On the other hand, the market report states that there’s demand for roughly 23 million square feet. And, even though speculative developments are landing tenants later on in the development process, the important thing is that they still are landing tenants.
2. Washington, D.C.
The wider Washington, D.C., area was home to $5.4 billion in industrial real estate transactions through September, a massive 139.9% year-over-year increase. Pricing for industrial properties is likely to continue trending upwards through the end of the year, even though investment volume is likely to slow, thanks to the significant shift in interest rates across the country.
The market will remain hot, however, thanks to strong, consistent demand for industrial space across the capital, Northern Virginia and Suburban Maryland. Despite 3.3 million square feet under construction at the end of September, a report from JLL expects vacancy to fall even further than the 3.6% reported.
1. Lehigh Valley
The Lehigh Valley in Eastern Pennsylvania has a lot going for it. The area, which includes Allentown and Bethlehem, may be relatively small in terms of population, but it’s an industrial powerhouse: The market has roughly the same amount of industrial distribution space as Philadelphia. What’s more, the market is situated within 50 miles of Philly and less than 80 miles from New York City.
Add in an abundance of developable land, significantly lower costs, and strong transportation networks, and it’s no surprise that tenant demand — and subsequent investor activity — has been picking up across the valley for years. The market lands in first place on our list, despite having the lowest transaction volume of the top 10, at just over $1.5 billion. While this figure may not be the most impressive without the market-specific context, its growth has been truly impressive: up 151.8% over the year.
Related Questions
What are the top 10 fastest-growing markets for industrial real estate investment in 2022?
The top 10 fastest-growing markets for industrial real estate investment in 2022 are:
Rank Market Investment Volume ($B, 12 months ending in September 2022) Year-over-Year Growth 1 Lehigh Valley $1.54 151.8% 2 Washington, D.C. $5.39 139.9% 3 Columbus, Ohio $2.32 108.2% 4 Orlando, Fla. $1.75 101.1% 5 South Florida $5.12 79.4% 6 Denver $2.44 71.6% 7 San Diego $3.44 54.9% 8 Phoenix $6.37 53.7% 9 Indianapolis $3.21 49.4% 10 Chicago $9.02 48.1% One of the largest industrial real estate markets in the country, Chicago, has drawn heavy investment activity this year. Total industrial property sales surpassed the $9 billion mark during the 12 months ending in September. That’s nearly a 50% uptick from the previous period.
Why Chicago? Well, for one, the market’s location in the heart of the Midwest serves as a key advantage, especially when considering the importance of reducing shipping distances to distributors. This is clear when looking at who’s leasing space — third-party logistics companies had the largest chunk of leasing activity in the third quarter, according to a report from JLL.
What are the key factors driving industrial real estate investment in 2022?
The key factors driving industrial real estate investment in 2022 are the unprecedented rise of e-commerce, the ever-greater role logistics providers play in our lives, and the increase in demand for electric vehicles. According to a second-quarter report from JLL, logistics, distribution, and third-party logistics leasing activity continue to fire on all cylinders https://www.us.jll.com/en/trends-and-insights/research/industrial-market-statistics-trends. Additionally, Yardi Matrix’s most recent national industrial report highlighted that there was 77.2 million square feet of manufacturing space underway nationwide, with 58% directly related to electric vehicle parts or assembly operations https://www.yardimatrix.com/publications/download/File/2657-MatrixIndustrialReport-August2022.
What are the most attractive features of industrial real estate investments in 2022?
Industrial real estate investments have been a popular choice for investors in recent years, and this trend is expected to continue in 2022. According to a survey of investors, industrial real estate was the top investment pick for the year, with 60% of respondents indicating that it was their top choice.
The focus on industrial assets is two-fold: investors are targeting modern properties in major population centers, as well as older buildings and facilities in secondary and tertiary markets. Additionally, niche sectors like self storage are also gaining traction.
The top five markets for industrial investments in 2022 are Inland Empire, Los Angeles, Savannah, Dallas-Fort Worth, and Chicago. These markets have seen high sales volumes and low vacancy rates, making them attractive to investors.
The most attractive features of industrial real estate investments in 2022 include:
- High demand for modern industrial space due to the rise of e-commerce and the role of logistics providers
- A resurgence in manufacturing, largely driven by the increase in demand for electric vehicles
- High sales volumes and low vacancy rates in the top five markets for industrial investments
- Niche sectors like self storage gaining traction
What are the risks associated with investing in industrial real estate in 2022?
The primary risks associated with investing in industrial real estate in 2022 are the potential for inflation, the effects of the Covid-19 pandemic, and the fiscal and monetary policies that may be adopted as a result of it. Inflation could lead to higher costs associated with industry products and services, and the pandemic could lead to travel restrictions that limit foreign capital investments. Additionally, the government's quantitative easing policy could lead to an elevated federal funds rate, which could make it more expensive to acquire debt for commercial real estate financing.
It is important to note that the market is still expected to be strong in 2022, and the low interest rates that govern the industry at the moment should support a strong commercial real estate market. Additionally, the demand for investors remains at a substantial high, which could open the way for many new commercial real estate investors.
What are the best strategies for investing in industrial real estate in 2022?
The best strategies for investing in industrial real estate in 2022 depend on the market you are looking to invest in. According to a second-quarter report from JLL, industrial real estate has been the rock star of the commercial real estate realm for several years, and the pandemic served as rocket fuel for the sector, driving it where many had anticipated it would go — just in half the time. With the unparalleled rise of e-commerce and the ever-greater role logistics providers play in our lives, demand for modern industrial space has hit an all-time, sustained high.
We’ve compiled a list, identifying the top five markets for industrial investment across the U.S. Our ranking blended data from JLL with Yardi Matrix’s most recent national industrial report to produce a comprehensive list of high-performance markets from coast to coast.
The top five markets for industrial investment in 2022 are Inland Empire, Los Angeles, Savannah, Dallas-Fort Worth, and Chicago. You can find more information about each market in the table below.
Rank Market Sales Volume (Jan-July, $B) Vacancy (Q2) 1 Inland Empire $2.9 0.40% 2 Los Angeles $3.3 0.70% 3 Savannah $0.9 2.90% 4 Dallas-Fort Worth $2.2 2.50% 5 Chicago $2.1 3.20% When investing in industrial real estate, it is important to consider the market you are investing in, the asset class, and the loan product you are using. For more information on selecting the best industrial investment, you can read our blog post here. If you are looking to acquire or refinance an asset, you can get a free quote by clicking the button in the menu above.
What are the most important trends to watch in industrial real estate investment in 2022?
Industrial real estate has been the rock star of the commercial real estate realm for several years, and the pandemic served as rocket fuel for the sector, driving it where many had anticipated it would go — just in half the time. With the unparalleled rise of e-commerce and the ever-greater role logistics providers play in our lives, demand for modern industrial space has hit an all-time, sustained high.
A second-quarter report from JLL highlighted that while logistics, distribution, and third-party logistics leasing activity continue to fire on all cylinders, manufacturing is also seeing a resurgence. This is largely driven by the increase in demand for electric vehicles. At the end of June, there was 77.2 million square feet of manufacturing space underway nationwide, with a staggering 58% directly related to electric vehicle parts or assembly operations.
The most important trends to watch in industrial real estate investment in 2022 include the continued rise of e-commerce, the increasing role of logistics providers, and the resurgence of manufacturing, particularly related to electric vehicles. Investors should also be aware of the potential for older buildings and facilities in secondary (or tertiary) markets, as well as for niche sectors like self storage.