Manufacturing Thrives Amid Construction Surges

Car factories are propelling the manufacturing industry. Image by gorodenkoff/iStockphoto.com

The U.S. is witnessing a robust manufacturing boom, fueled by a surge in construction spending on advanced manufacturing facilities, according to the latest CommercialEdge industrial report. In May, the annualized monthly rate for new manufacturing facilities reached a record-breaking $194 billion, doubling since 2021. Major legislation, such as the CHIPS and Science Act and infrastructure bill, along with supply chain disruptions during the pandemic, have contributed to the growth.

The computer/electronic sector has seen the most substantial increase, with significant investments in semiconductor facilities by companies like Taiwan Semiconductor Manufacturing Co., Samsung and Intel. Electric vehicle plants, including Hyundai’s $5.5 billion plant in Savannah and Panasonic’s $4 billion EV battery facility in Kansas City, have also contributed to the boom. While employment in manufacturing hasn’t spiked, specialized workers will be in demand for the advanced manufacturing projects, leading to potential growth in manufacturing employment over the coming decade, targeting skilled labor markets.

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Nationwide, the pipeline totaled 606.5 million square feet of industrial space under construction, accounting for 3.3 percent of existing inventory. The largest pipelines on a percentage of stock basis were found in Phoenix (16.6 percent, 58.8 million square feet), Dallas-Fort Worth (5.9 percent, 52.7 million square feet) and the Inland Empire (5.0 percent, 31.1 million square feet).

An additional 202 million square feet was delivered in the first half of the year. Meanwhile, new industrial starts cooled to 147.1 million square feet in the first half of 2023 due to higher borrowing costs and stabilized demand, contrasting with 313.2 million square feet started in the first six months of 2022. Industrial sales volume year-to-date in June totaled $21.2 billion.

Southern California leads industrial rent gains

National in-place rents for industrial space averaged $7.33 per square foot at the end of June, CommercialEdge data shows. Average rents recorded a 740 basis-point increase year-over-year and four cents more than the previous month. Southern California leads the nation in rent gains, with the Inland Empire experiencing a remarkable 17.4 percent increase in in-place rents over the past year. Los Angeles recorded a 13.2 percent increase while Orange County came in third with a 10.0 percent uptick.

Other regions on the East Coast, like Boston (10.3 percent) New Jersey (8.8 percent) and Bridgeport (8.5 percent), also saw healthy growth. At the same time, Phoenix’s manufacturing boom fueled its 10.3 percent rent growth, despite being an inland market.

Meanwhile, the national industrial vacancy rate was 4.5 percent at the end of June, a 20-basis-point increase from the previous month. Industrial vacancy was highest in Houston (9.2 percent), Boston (7.8 percent) and Denver (6.8 percent). Post-pandemic, there has been a surge in new office construction projects, leading to a marginal uptick in vacancy rates nationwide.

Read the full CommercialEdge report.