In 2023, industrial real estate emerged as one of the highest-performing asset classes, experiencing demand at levels close to historical records. Despite experts acknowledging that growth may occur at a somewhat reduced rate in 2024, the outlook for the sector remains optimistic.
Similar trends that occurred in industrial real estate in 2023 will continue into 2024. Those trends include reshoring initiatives by U.S. based manufacturers, continued demand for warehouse and distribution space from retail and ecommerce companies, and a slight softening of rent growth for warehouses and other industrial properties.
Reshoring Efforts
In Ohio, major reshoring projects made headlines in 2023, the most notable being Intel’s $20 billion chip manufacturing plant outside Columbus, and Ford’s new $1.5B EV plant in Avon Lake outside of Cleveland. Similar reshoring mega-projects are in development across the U.S. in states like North Carolina, Arizona, Utah and New York. As more companies bring their manufacturing operations closer to home, expect industrial real estate values to rise as demand for industrial space outpaces supply.
E-commerce and Retail Demand Remains Strong
Contrary to what many thought entering 2023, the U.S. successfully avoided a recession despite record inflation and the Federal Reserve having to raise interest rates at the fastest rate in history. The economy appears steady heading into 2024, with retail sales remaining strong and record low unemployment. In Cleveland, retail leasing is strong and many local owners are reporting vacancy rates of less than 5% at their strip malls and shopping centers. Retailers will continue to focus on regionalizing their operations in order to meet customer demand, which bodes well for warehouse and distribution properties.
Market Fundamentals
According to J.P. Morgan and Moody’s Analytics, forecasters expect that annual rent growth for industrial, warehouse and distribution properties will be ~5% to ~6% per year over the next decade. This represents a new steady state for the industry and shows why many investors, brokers and developers are so bullish on industrial real estate in the United States.
According to CBRE, completions of industrial real estate projects reached record highs in 2023, increasing 33% YoY through Q3 of 2023. This surge can be attributed to construction projects that started before 2022 while interest rates were normalized. Vacancy is expected to peak at historically low levels in mid-2024, subsequently decreasing as a significant drop in new construction supply coincides with a rising demand, boosted by an improved economic growth outlook.
2024 is shaping up to be a strong year for industrial real estate nationally and locally here in Ohio. Reshoring, continued consumer demand, steady economic activity and a slowing of new supply will help contribute to the continued growth of industrial real estate in 2024.
Cleveland Industrial Real Estate 
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