U.S. industrial properties have seen leasing and sales velocity exceed pre-pandemic levels, as changes wrought by COVID-19, as well as investors’ flight to safety, have accelerated pre-existing trends in the segment.
Experts note industrial leasing has continued to experience strong momentum throughout the pandemic. Unlike other property types, the industrial market has seen strong absorption throughout 2020 and continuing into 2021. According to Transwestern, the industrial sector had 104.1 million square feet of positive net absorption in the first quarter — the second consecutive quarter that absorption exceeded 100 million square feet.
“It’s logical to attribute this to ecommerce distribution and warehousing, but in reality, we’re seeing every type of industrial property experience this heightened demand,” says John Mase, CEO of IRG.
Lindsey Sugar, senior managing director of capital markets at Elion Partners, agrees. She says her organization has seen “tremendous leasing velocity across the portfolio.” Some of the broader activity has been driven by Amazon, but “definitely not only Amazon,” adds Sugar.
That high level of leasing demand is affecting tenants’ decision making. According to Sugar, some warehouse occupiers are renewing leases early to lock in rental rates now, and “tenants looking to expand may do so earlier to lock in additional space at more favorable rental rates.”
Activity is also strong in the industrial property sales market.
“We have seen an increase in sales since pre-pandemic levels and pricing continues to increase,” says Mase.
Mase notes, “Cap rates continue to decline as money flows into industrial real estate from all over the world. There is plenty of money available, rates are increasing, and industrial is a solid and safe haven for many investors.”
Core coastal markets are seeing tremendous demand drivers in the wake of COVID-19, notes Sugar, who points to “a true revolutionary shift in how people are living and consuming goods.” The firm’s investment strategy is focused on last-mile logistics real estate, targeting core, urban logistics hubs near large population centers in infill coastal markets.
Elion Partners has been active in the last-mile industrial segment. Recently, the firm acquired four last-mile logistics assets totaling 864,000 square feet for $216 million. The assets were located in the Seattle, San Francisco, Southern California and New York City markets.
Mase agrees that industrial space for ecommerce usually needs to be located closer to urban areas. “These sites have many benefits — from job creation to being located close to the customer base,” he says. “We’ve taken some creative actions to meet these needs. Just outside of Cleveland, we purchased Randall Park Mall, one of the largest shopping malls in the country, and redeveloped it as an industrial park. The result included a major distribution site for Amazon, speculative industrial buildings, and a renovated big-box retail space repositioned for an industrial use.”
While the future remains uncertain, experts say the strong demand for industrial property shows no sign of letting up.
Loretta Clodfelter is senior editor of Institutional Real Estate Americas.