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The Top 10 Markets to Buy Industrial Real Estate in 2023
Find out which places are this year's best industrial markets. Most are in the eastern half of the U.S., but one California market stands out.
Industrial real estate had a fantastic year in 2022, but what is the outlook for this year? Find out how the sector is shaping up in 10 hot markets for investment in 2023.
A quick summary of the article: There are so many great places to invest right now. Not all of them are on this list. Just make sure you pay close attention to leasing rates and — critically — how development activity matches with demand. That’s true whether this is your first industrial property acquisition or your 50th.
We compiled a list highlighting the 10 markets we feel are set to outperform in 2023. The data provided in the table comes from Yardi Matrix’s December 2022 industrial report. Our ranking used a careful analysis of this data, adding the context of ongoing development activity and general growth opportunities in all primary and secondary industrial markets, cutting out any metro we felt was unsustainably priced.
Where to Buy Industrial Real Estate in 2023
Rank | Market | Vacancy Rate* | YoY Rent Growth* |
|---|---|---|---|
1 | Columbus | 1.7% | 3.2% |
2 | Nashville | 1.2% | 6.4% |
3 | Indianapolis | 2.5% | 3.2% |
4 | Kansas City | 2.5% | 3.2% |
5 | Central Valley | 2.6% | 5.1% |
6 | Atlanta | 2.6% | 6.6% |
7 | Philadelphia | 3.8% | 7.1% |
8 | Baltimore | 3.5% | 5.8% |
9 | Charlotte | 3.1% | 3.0% |
10 | St. Louis | 3.2% | 2.6% |
* Data is as of the end of November 2022.
10. St. Louis
You might be surprised to see St. Louis on our list of top industrial markets. The market doesn’t typically stand out, regardless of the property sector. There’s potential in the metro for industrial real estate investments, though.
Even though St. Louis’s rent growth has been less than impressive in the past year, up only 2.6%, there’s room to grow — so long as a development boom doesn’t materialize. That seems unlikely, however, given the focus of many national developers on markets like Northern New Jersey, the Inland Empire, and Dallas-Fort Worth. With moderately increasing demand amidst a relatively static level of inventory, rents — and property values — will begin to grow more and more.
9. Charlotte
Charlotte has a lot going for it. For one, the Charlotte Inland Port has positioned itself as a major transit hub for international goods. For another, the market is spread across a wide, accessible area with plenty of space for new facilities. Finally, the demand is there: Vacancy fell to 3.1% late last year.
In some ways similar to the Central Valley, Charlotte’s potential has not yet been realized. Rents were only up 3% year-over-year through November — compared to the 6.5% national rate. Even new leases don’t seem to command much of a premium, if any. However, with the inventory of coastal markets in the Southeast struggling to meet the overwhelming demand, more and more users will be shifting further inland.
8. Baltimore
Baltimore’s position in eighth comes from low vacancy (30 basis points below the national figure) and rent growth that has yet to be realized. Though absorption waned a bit in the second half of 2022, significant demand exists in the market for modern space — particularly from major distribution and e-commerce companies seeking more than 100,000 square feet.
Further, investment opportunities within the Baltimore metro exist. An analysis of Loopnet and CREXI listings showed more than 20 industrial properties listed in early January 2023. Most are smaller than the larger, 100,000-square-foot assets mentioned above, but smaller industrial space also remains in demand.
7. Philadelphia
Philadelphia is a huge industrial market, spanning not only the city itself but a wide area of suburbs stretching into New Jersey and Delaware. It earns the seventh spot on our list due to its rapid rent growth — even despite a vacancy level right around the national figure.
Although it’s a large city in and of itself, Philly’s industrial sector is notably well positioned to serve the residents of New York City’s distribution needs, but at a fraction of the cost. Consider the average rent rate of $9.22 per square foot in Northern New Jersey in November 2022. That’s 35% higher than the $6.79 per square foot reported in Philadelphia, according to Yardi Matrix’s December report.
6. Atlanta
Atlanta’s been positioning itself as an industrial powerhouse for years. The metro has an abundance of developable land, and new warehouses and distribution centers are popping up practically every day. Even so, there’s simply not enough space to meet demand — vacancy was at 2.6% in November, one of the lowest rates across the country.
The metro may appear to be more of a developer’s market than an investor’s, but looks can be deceiving. Although rapid construction is happening, it’s getting further and further away from the city itself. Location is key: A well-maintained property in South Atlanta is likely to outperform a newly developed warehouse in western Douglas County.
5. Central Valley
The Central Valley is California’s version of an affordable market. Industrial rents are lower here, as are sale prices. The valley covers a whole lot of ground, too, offering accessibility both to Los Angeles and the wider San Francisco Bay Area — just at a fraction of the cost. As industrial tenants seek to reduce their operating costs, many are heading out of high-cost markets like the Inland Empire. The Central Valley is perfectly positioned to capitalize on this.
Like most great deals, the Central Valley’s relative affordability won’t last forever — and getting in now could pay major dividends. In a few years, it may look much like any other major industrial market — with much higher barriers to entry.
4. Kansas City
Though it may not be the largest metro on our list, Kansas City’s diverse economy — with strong logistics, manufacturing, and distribution components — makes it a great place for your next industrial investment. The market is similar to St. Louis in many respects, with relatively sluggish rent growth contrasted with a lack of development activity.
Kansas City benefits from a wealth of transportation channels into and out of the centrally located market. The metro’s rail center is the largest in the country, and the Kansas City International Airport is a huge air cargo hub. Because of these stable demand factors, investing in the Kansas City industrial market is generally a good and safe long-term play.
3. Indianapolis
Indiana’s capital city’s industrial sector has come to life in recent years. The metro has a rapidly expanding inventory, with nearly 23 million square feet under construction in late 2022, yet vacancy remains tight, at 2.5%.
While Indianapolis and the surrounding region have significant distribution needs that the market serves, one additional major benefit is its relative proximity to Chicago. While Chicago’s rents are nowhere near the level of major coastal markets, Indianapolis’s rental rates are, on average, about 33% cheaper than the Windy City — meaning logistics providers and manufacturers seeking to lower their costs are regularly eyeing the market for relocation or expansion.
2. Nashville
At the end of the year, Nashville had the lowest vacancy rate of any market in the United States, coming in at 1.2%. That’s even lower than the Inland Empire’s 1.3%, marking the first time in recent memory the Southern California region hasn’t taken the top spot. With such a low vacancy rate, two things are sure to happen in Nashville.
First, industrial rent prices — and sale prices — are going to soar. We’re already seeing that in the rents, which were up 6.4% on a year-over-year basis. Also, compare the average rate signed in the past year ($11.29 per square foot) with the average in-place rent of $5.52.
Second, industrial development will take off. This hasn’t quite happened yet. While there were around 6.5 million square feet of industrial facilities under construction late last year, that’s only a little over 3% of the market’s stock — far lower than the 4.2% reported by CommercialEdge nationwide. Until this construction activity truly materializes, Nashville is ripe for investment.
1. Columbus
At the top of our list, Columbus has been thriving since at least 2020, when space for e-commerce tenants picked up in demand. The market, positioned within a day’s drive of two-thirds of the nation’s population, reported a historically tight vacancy rate of 1.7% this past November.
The market has challenges, and most are related to development. While close to 16 million square feet was under construction at the end of 2022, this is unlikely to be enough to meet steadily growing demand. Rent growth hasn’t yet materialized: Rents increased by only 3.2% over the year. This means there is likely significant upside to any investment in the market today.
Conclusion
All of our top 10 markets, with only a single exception, are located in the eastern half of the United States. While there are many great and opportune places to invest in the West, most are priced out of reach for the average investor.
The main takeaway, regardless of if your next investment is in one of these markets or not, is that keeping an eye on the fundamentals — both at a national and local level — are essential to making a good investment decision.
One way to boost the strength of your investment is to find financing that matches your strategy. We can help with any type of loan, from build-to-suit construction to acquisition and everything in between. Get a free quote by entering your details in the form below.
Related Questions
What are the benefits of investing in industrial real estate?
- The benefits of investing in industrial real estate include the potential for rental revenue growth and property value appreciation. Additionally, the industrial real estate sector has been relatively resilient to macroeconomic headwinds.
What are some of the risks of investing in industrial real estate?
- Some of the risks of investing in industrial real estate include the potential for lower rental revenues and property values in a recessionary environment. Additionally, the industrial real estate sector is sensitive to changes in trade policy.
What are the best markets for industrial real estate investment in 2023?
The best markets for industrial real estate investment in 2023 are Columbus, Nashville, Indianapolis, Kansas City, Central Valley, Atlanta, Philadelphia, Baltimore, Charlotte, and St. Louis. According to this blog post, these markets have the lowest vacancy rates and highest year-over-year rent growth as of the end of November 2022.
Rank Market Vacancy Rate* YoY Rent Growth* 1 Columbus 1.7% 3.2% 2 Nashville 1.2% 6.4% 3 Indianapolis 2.5% 3.2% 4 Kansas City 2.5% 3.2% 5 Central Valley 2.6% 5.1% 6 Atlanta 2.6% 6.6% 7 Philadelphia 3.8% 7.1% 8 Baltimore 3.5% 5.8% 9 Charlotte 3.1% 3.0% 10 St. Louis 3.2% 2.6% * Data is as of the end of November 2022.
What are the benefits of investing in industrial real estate in 2023?
Investing in industrial real estate in 2023 can provide a number of benefits. According to this article, some of the benefits include:
- Low vacancy rates, such as the 1.7% vacancy rate reported in Columbus in November 2020.
- Significant demand for modern space, particularly from major distribution and e-commerce companies.
- Investment opportunities within the Baltimore metro.
- Potential for rent growth that has yet to be realized.
For more information on loan products for industrial real estate investments, please contact us.
What are the risks associated with investing in industrial real estate in 2023?
Investing in industrial real estate in 2023 carries a few risks. The most significant risk is the potential for oversupply of industrial space, which could lead to a decrease in rental rates. Additionally, there is the risk of rising interest rates, which could make financing more expensive. Finally, there is the risk of a decrease in demand for industrial space, which could lead to a decrease in occupancy rates.
According to this article, the market in Columbus has a historically tight vacancy rate of 1.7%, but rent growth has not yet materialized. This could indicate that there is potential for oversupply of industrial space in the future.
The Federal Reserve has indicated that it will be easing back on its quantitative easing policy by mid-year, which could lead to an elevated federal funds rate. This could make financing more expensive for investors.
Finally, there is the risk of a decrease in demand for industrial space. This could be caused by a decrease in economic growth, or by a decrease in foreign capital investments due to travel restrictions.
What are the most important factors to consider when investing in industrial real estate in 2023?
When investing in industrial real estate in 2023, the most important factors to consider are the vacancy rate, rent growth, and the amount of space under construction.
The vacancy rate is an important indicator of the health of the market. According to industrialproperty.loan, a historically tight vacancy rate is a sign of a healthy market. In November of 2022, Columbus, Ohio reported a vacancy rate of 1.7%.
Rent growth is also an important factor to consider when investing in industrial real estate. According to commercialrealestate.loans, rent growth in Columbus, Ohio was only 3.2% over the year. This suggests there is likely significant upside to any investment in the market today.
Finally, the amount of space under construction is an important factor to consider when investing in industrial real estate. According to commercialrealestate.loans, close to 16 million square feet was under construction at the end of 2022 in Columbus, Ohio. This may not be enough to meet steadily growing demand.
What are the best strategies for investing in industrial real estate in 2023?
The best strategies for investing in industrial real estate in 2023 depend on the market you are investing in. Generally, it is important to keep an eye on the fundamentals at both a national and local level. Additionally, it is important to find financing that matches your strategy.
For example, in Columbus, Ohio, which is at the top of our list, space for e-commerce tenants has been in high demand since 2020. The market is positioned within a day’s drive of two-thirds of the nation’s population, and reported a historically tight vacancy rate of 1.7% in November 2022. However, rent growth has not yet materialized, so there is likely significant upside to any investment in the market today.
We can help with any type of loan, from build-to-suit construction to acquisition and everything in between. Get a free quote by entering your details in the form below.
What are the most profitable industrial real estate investments in 2023?
The most profitable industrial real estate investments in 2023 are likely to be in the top 10 markets for industrial investments. According to this article, the top 10 markets for industrial investments in 2023 are:
Rank Market Sales Volume (Jan-July, $B) Vacancy (Q2) 1 Columbus $1.2 1.7% 2 Dallas-Fort Worth $2.2 2.2% 3 Atlanta $1.7 3.2% 4 Chicago $2.3 3.3% 5 Houston $1.3 3.4% 6 Inland Empire $2.9 3.5% 7 Los Angeles $3.3 3.7% 8 Charlotte $0.9 3.8% 9 Phoenix $1.2 4.2% 10 Savannah $0.9 4.3% These markets have the lowest vacancy rates