What 4 Cities Have the Highest Industrial Real Estate Absorption?

The industrial real estate market continues to demonstrate resilience, standing out as one of the most stable sectors in commercial real estate. 

Despite fluctuations in leasing activity and absorption, industrial properties have remained in high demand, driven by strong investor interest, global onshoring trends, and the rapid growth of e-commerce.

Read on, you’ll learn how to take advantage of this environment by learning:

• Top Absorption Markets: Discover the cities leading the industrial real estate market and why they're outperforming others.
• Key Market Trends: Learn how e-commerce growth and onshoring are driving industrial space demand across the U.S.
• Opportunities for Tenants: Find out how current vacancy rates can offer short-term negotiation advantages for tenants.
• Struggling Markets: Understand the challenges faced by regions with negative absorption rates and the factors behind their weaker performance.

The Industrial Market Entering 2025

Industrial’s consistent success stands in stark contrast to the office sector, which is grappling with record-high vacancies and potential defaults.

Industrial spaces have seen steady demand and increasing rents. The U.S. is on pace to absorb over 100 million square feet (MSF) of industrial space by the end of 2024, signaling a healthy market even as vacancy rates edge a bit higher.

In the third quarter of 2024, the national industrial vacancy rate climbed by 30 basis points to 6.4%, still below the 10-year pre-pandemic average of 7%.

While new construction has slowed, demand for space is expected to reaccelerate as businesses continue reshoring operations and expanding logistics networks. Notably, net absorption reached 29.5 MSF in Q3, down from the previous quarter but still part of a steady upward trend.

"We expect that net absorption will more than double in 2025 as leasing activity accelerates with greater economic certainty."

-GlobeST

As the year progresses, industrial real estate is positioned to dominate the commercial pipeline, fueled by the sustained growth of e-commerce and high-tech warehouses. 

Let’s take a look at four cities leading the charge in industrial absorption, each boasting robust demand and significant contributions to the sector's growth in 2024.

1. Dallas-Ft. Worth, TX

Dallas-Ft. Worth (DFW) remains a powerhouse in the industrial real estate market, leading the nation in absorption. With a strategic location, well-developed infrastructure, and proximity to major highways, the region absorbed more than 27 MSF of industrial space this year. The market has benefitted from strong demand in logistics, e-commerce, and manufacturing. Additionally, the area continues to see speculative developments, with over 50 MSF of industrial space currently under construction.

 Leasing activity in DFW has surged, and the average asking rent for industrial properties has climbed to over $8 per square foot. This demand has been driven by companies expanding their supply chains, benefiting from the region's central location relative to the Southern U.S. and its booming population.

2. Houston, TX

Houston, long known as a key hub for energy, has also emerged as a leader in industrial real estate absorption, driven by its logistics and manufacturing sectors.

The city absorbed approximately 18 MSF of industrial space this year, making it one of the top-performing markets in the nation. Despite the fluctuations in oil prices, Houston's diversified economy has allowed it to become a logistics powerhouse, bolstered by the rise of e-commerce and onshoring activities.

The port of Houston plays a significant role in the city's industrial demand. As one of the largest ports in the U.S., it facilitates the movement of goods across the country, making Houston a crucial distribution hub. In addition to its logistical advantages, Houston's industrial rents remain competitive, attracting businesses looking for affordable and scalable warehouse spaces.

3. Phoenix, AZ

Phoenix has experienced one of the most significant increases in industrial absorption, driven by its booming e-commerce sector and proximity to major West Coast ports. The city absorbed 15 MSF of industrial space in 2024, fueled by a combination of speculative developments and demand for modern warehouse facilities.

What sets Phoenix apart is its rapid rent growth.

Rents have climbed by 8.7% year over year, and the market has emerged as a key player in the national industrial landscape. With robust demand for high-tech, modern distribution centers, Phoenix has positioned itself as an attractive destination for companies seeking both affordable space and access to key logistics routes.

4. Savannah, GA

Savannah, known for its thriving port, has become a rising star in the industrial real estate market, absorbing over 12 MSF in 2024. The city’s port infrastructure, one of the fastest growing in the U.S., has played a central role in its industrial success. Savannah’s strategic location along the East Coast provides a critical gateway for international trade, making it an essential hub for distribution and logistics companies.

The region has seen significant investment in speculative industrial developments to accommodate growing demand from manufacturers and logistics firms. As nearshoring continues to accelerate, companies are turning to Savannah to support their supply chains, particularly with the rise of onshoring in the Southeast. The area's competitive rents and access to global shipping routes have made it a prime location for industrial investment.

Key Market Drivers: E-Commerce and Onshoring

Across these markets, the surge in demand is closely linked to two major trends: e-commerce growth and onshoring. E-commerce, which initially fueled industrial absorption during the pandemic, is once again expanding.

Amazon and other major players have resumed leasing activity after a brief pullback in 2022, driving up the need for warehouse and distribution spaces. Companies are increasingly relying on high-tech warehouses equipped with automation and AI-driven logistics systems to optimize operations and meet consumer demand. 

Onshoring, the strategic move to relocate production closer to home, is also contributing to the industrial boom. With over 1,800 companies reshoring operations in the past year, demand for industrial space is growing rapidly as businesses seek greater supply chain stability. The trend is expected to continue driving absorption well into 2025, particularly in markets like Dallas, Houston, and Savannah, where logistics infrastructure is well-established.

"The Northeast and South yielded the highest annual increases for asking rents while that category in the West fell 3.3% since Q3 2023."

-GlobeST

 The Road Ahead: Opportunities for Tenants

While absorption rates have remained strong, the slight rise in vacancy rates offers tenants an opportunity to negotiate better deals in the short term. With construction activity slowing and demand expected to pick up again by mid-2025, tenants should capitalize on the current market conditions to secure favorable lease agreements. The combination of rising rents, limited supply, and heightened competition means that strategic negotiations can lead to long-term cost savings.

 It's also worth mentioning which cities experienced the worst absorption levels.

According to recent reports, Los Angeles, New Jersey, Oakland, Reno, Seattle, and Portland recorded negative net absorption during the third quarter of 2024.

These markets are struggling to keep up with the high levels of new speculative industrial developments, resulting in vacancies outpacing leasing demand. Economic factors, oversupply, and shifting regional dynamics have contributed to weaker performance in these areas, highlighting the uneven nature of the industrial market's growth.

Takeaways for Industrial Tenants

Industrial real estate continues to outperform other commercial sectors, driven by demand for logistics and warehouse space. 

Markets like Dallas-Ft. Worth, Houston, Phoenix, and Savannah are leading the charge in absorption, with strong leasing activity and rent growth. As trends in e-commerce and onshoring drive future demand, these cities will remain key players in the national industrial real estate landscape. Tenants looking to secure their place in these competitive markets should act now to take advantage of current opportunities before absorption rates accelerate even further in 2025.