2024 Industrial: E-Commerce, Supply Chain Dynamics Shape Sector

According to CompStak’s 2024 Biannual Industrial Market Overview, the industrial real estate market reflects a complex interplay of robust demand, shifting lease trends, and evolving economic pressures.

E-commerce, which hit 16.2% of total retail sales in Q324, continues to drive demand for logistics and warehouse space. At the same time, US port activity surged, with TEU (Twenty-foot Equivalent Unit) volumes at key ports like Los Angeles, Long Beach, and New York/New Jersey up significantly YoY.

Growth Drivers

E-commerce continues its upward trajectory, nearing its Q220 peak and cementing its role as a critical factor in industrial real estate demand. At the same time, TEU volumes across US ports showed robust YoY growth, with the West Coast leading. This activity indicates ongoing strong demand from the logistics and transportation sectors.

Lease Expirations

A significant proportion of leases will expire by 2026. Many 2025 expirations were signed at below-current market rents, likely leading to sharp increases upon renewal. Over 27% of industrial leases are set to expire by 2026, with many paying significantly below market rates. This dynamic could create substantial cost pressures for tenants while opening opportunities for landlords to capitalize on rising rents. 

E-commerce and Logistics Drive Demand

E-commerce reached 16.2% of retail sales in Q324, sustaining demand for warehouse and logistics spaces. Major US ports like Los Angeles and Long Beach saw TEU volumes increase by over 22% YoY, emphasizing the logistics sector’s critical role in industrial real estate.

Rising Vacancies Amid Market Softening

The industrial vacancy rate rose for the seventh consecutive quarter to 3.1%, the highest since 2020. Effective rents for bulk transactions fell 1.9% from their 4Q23 peak as landlords offered increased concessions and shorter lease terms. Lease terms have shortened by 9.7% since 2022 for bulk deals, accompanied by seven consecutive quarters of rising free rent periods.

Steep Rent Hikes for Renewals

Tenants renewing industrial leases faced significant cost increases, averaging 61.1% higher rents, with older leases expiring well below current market rates. This trend highlights the challenges tenants face in a market with rising replacement costs.

Regional Variations

Regional performance varied, with NJ-North and Central markets experiencing an average 55.3% rent increase for lease renewals. Effective rents for bulk transactions in this area declined 8.3% YTD in 2024, while free rent periods surged by 58.7%. Major ports in this region have seen heightened activity, though uncertainty looms with potential labor strikes in 2025. 

Looking Ahead

Industrial real estate development remains positioned for growth, particularly as companies invest in supply chain resilience and warehouse spaces to accommodate the booming e-commerce sector. While demand remains strong, potential tariff increases under the new administration may drive short-term stockpiling and warehouse demand and spur long-term supply chain diversification. 

Despite some headwinds, e-commerce and logistics remain growth engines, with significant leasing activity from key players like Western Post and Mondelez International. As the market stabilizes, industrial real estate investors and tenants should prepare for continued lease structure and pricing evolution.