INVESTED IN INDUSTRIAL
Intense competition and strong fundamentals are driving industrial sale prices ever higher .
The industrial sector powered through the worst of the pandemic without missing a step — and the outperformance of the sector has only served to stoke investor demand with robust transaction volume and rising property prices .
“ Spreads over U . S . benchmark rates continue to be at high levels by historic standards , which will continue to drive capital into the sector ,” says Dennis Mitchell , CCIM , senior managing director JLL Capital Markets in Atlanta . “ Additionally , property fundamentals remain strong as demand continues to outpace supply by a wide margin . Due to these tailwinds , we expect investor interest for industrial assets to continue to remain strong .”
Industrial sales during the first half of 2021 reached $ 51.9 billion — 10 percent higher than the same period in 2020 and 26 percent above the $ 38.4 billion in sales recorded during the first half of 2019 , according to Real Capital Analytics . Anecdotally , the story is much the same . In Chicago , yearto-date sales through July are tracking about the same or higher than pre-pandemic periods in 2017 , 2018 , and 2019 . “ That further proves that industrial continues to perform well despite the challenges of the pandemic , and we think the second half of the year will continue on that same trajectory and finish very strong ,” says Adam Marshall , CCIM , SIOR , a senior managing director in the Chicago office of Newmark .
Some large portfolio deals on the market could bolster transaction volumes during the second half of the year . An initial agreement between Equity Commonwealth and Monmouth Real Estate Investment Corp . on a
Key Figures in U . S . Industrial Market
Type
Total Stock ( in million sf )
$ 2.8 billion merger that included roughly 24.5 million sf industrial portfolio was rejected by Monmouth shareholders . However , it also is notable that individual assets account for a big chunk of the sales activity in the market . According to Real Capital Analytics , individual asset sales represented 77 percent of the $ 29.8 billion in sales that occurred during second
Demand for industrial space surged during the pandemic with a record high of 273.6 million sf of net absorption in 2020 . That momentum has carried into 1H2021 .
quarter . The largest deal to transact in 1H2021 was Costco ’ s purchase of a 1.6 million-sf distribution facility in California ’ s Inland Empire from CalPERS for $ 345 million .
INVESTORS BULLISH ON FUNDAMENTALS Demand for industrial space surged during the pandemic with a record high of 273.6 million sf of net absorption in 2020 . That momentum has carried into 1H2021 with absorption just shy of 200 million sf and vacancies that dipped to 4.8 percent at midyear , according to JLL .
Total Vacancy
Total Availability
YTD Net Absorption ( in million sf )
One question is whether 2020 was an outlier with unprecedented demand due to a surge in e-commerce activity . “ The pandemic definitely fueled the increase in industrial leasing ,” says David Robert Dunn , CCIM , a managing director at SVN Dunn Commercial in Arlington , Texas . Some industry research points to an acceleration of e-commerce during the pandemic that brought growth in online sales forward by about three years . According to the U . S . Census Bureau , e-commerce sales as a percentage of total U . S . retail sales hit a high of 15.7 percent in 2020 . Given the broad shift in consumer behavior with more people now comfortable shopping online — even for everyday items — many anticipate sustainable demand for industrial space from the logistics industry . “ I don ’ t think there is any going back ,” notes Dunn . “ I think we will continue seeing this high demand .”
JLL ’ s forecast for North American industrial absorption from 2021 to 2022 is anticipated to be healthy at 481.3 msf . At the same time , new supply has surpassed demand two years in a row , something expected to continue over the next two years with new deliveries projected to reach 697.3 msf by the end of 2022 . Considering the strong pace of construction , JLL is predicting that the North America vacancy rate will remain low , settling in at 6.2 percent by year-end 2022 , which is on par with the 10-year average of 6 percent . “ Worldwide , occupier demand for logistics space has never been higher and was also accelerated due to the pandemic ,” says Mitchell . “ Looking ahead , the industrial sector will continue to thrive for the foreseeable future driven largely by
YTD Construction Deliveries ( in million sf )
Under Construction ( in million sf )
2Q2021 Average Rent
Warehouse & Distribution 10,323,409 5.4 % 8.4 % 193,266 131,469 390,060 $ 6.60 Manufacturing 3,472,375 3.1 % 4.8 % 5,230 3,648 18,625 $ 6.74 Special Purpose 37,222 2.1 % 4.3 % -23 0 0 $ 8.43 Total 13,833,006 4.8 % 7.5 % 198,472 135,117 408,685 $ 6.62 Source : JLL Research
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COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE FALL 2021