Despite the ongoing normalization of demand and the shrinking industrial construction pipeline, the valuation of industrial space continues to increase. According to CommercialEdge’s industrial report for June (as of May 2024), the national average sales price has risen by 15.4% compared to the same time last year and by an impressive 71.2% compared to May 2019. Further highlighting the industrial sector’s growing importance, the cost of industrial space — now at $165 per square foot — is nearly on par with the price of office space.

Notably, from 2019 to 2023, the average sales price for industrial space in the top 20 U.S. industrial markets more than doubled. For instance, emerging markets like Nashville, Tenn., have seen values soar by 186% from $57 per square foot to $163 per square foot. Meanwhile, in the Inland Empire, Calif., prices surged by 107% to go from $121 to $251 per square foot. Philadelphia also experienced significant growth with a 103% increase taking it from $60 to $122 per square foot.

Other markets that haven’t doubled, but have recorded significant price increases in the last five years include New Jersey (up 85%, from $117 to $216 per square foot); Charlotte, N.C., (up 82%, from $51 to $93 per square foot); Dallas-Fort Worth (up 79%, from $72 to $129 per square foot); and the Bay Area (up 78%, from $173 to $308 per square foot). However, it’s worth noting that prices in some of these markets — including Nashville, Inland Empire, Charlotte and Philadelphia — have slid 10% to 20% from last year to the beginning of 2024. In contrast, prices have continued to rise in New Jersey, Dallas-Fort Worth and the Bay Area.

“Even as vacancy ticks up and deal volume remains down, transaction price per square foot is not budging,” Peter Kolaczynski, director at CommercialEdge.

These increased sales prices come even as transaction volume remains muted and demand for space normalizes.

“Investors continue to find value from the lease rate run-up of the past few years,” Kolaczynski added.

In May of this year, the national average rate for all in-place leases was $8.00 per square foot, representing a 7.5% increase over the previous figure from one year ago. At the same time, new leases signed in the last year averaged $10.25 per square foot with the premium paid for a new lease markedly higher in most in-demand markets.

With the continued normalization around new supply that has seen vacancy rates tip upward, CommercialEdge expects these price gains to continue. As for under-construction starts this year, just 69.2 million square feet have begun so far, and only 177.8 million square feet of industrial space has been completed.

Still, the outlook for long-term development is positive: With the growing momentum and manufacturing that has returned to the U.S. and nearby Mexico, the industrial sector looks solid in the longer term.

For more information, check out CommercialEdge’s full industrial report.