Why Industrial’s Trajectory Will Keep Surging
March 29, 2022 | Paul Bergeron | GlobeSt.com
US commercial property price growth continued its upward trajectory in February with all four major property types posting double-digit annual price growth, according to Real Capital Analytics.
Leading the way was the industrial asset class, whose prices climbed 28.5% from a year prior, the fastest annual rate among the major property sectors in February and a record for any property type since the inception of the RCA CPPI, RCA’s Michael Savino wrote.
It is easy to see why. Tight market conditions and rising land and construction costs in many markets and port cities led to limited development limiting new supply while demand for industrial warehouse space has continued to grow, Eli Randel, CREXi Chief Strategy Officer, explains. “In some instances, industrial space is being taken offline and converted into other uses. The result is tight market conditions, quickly growing rental rates, and increased investor appetite for product,” he tells GlobeSt.com.
Other metrics also illustrate industrial’s strength.
For instance, John Worth, EVP, research & investor outreach, Nareit, says that industrial has been one of the strongest REIT performers over the course of the pandemic. From Feb 2020 through the end of last week, industrial REITs are up 60%. Industrial REITs gained 62% in 2021. YTD in 2022, the industrial sector is down 8.6%, but so far in March, it is up 6.7%.
“Industrial REIT earnings have supported these valuations,” he tells GlobeSt.com. “Industrial REIT FFO grew 24% in 2021 compared with 2020. Compared with 2019, the last year prior to COVID, it is up 37%. The strong performance of the industrial sector is supported by increased consumer demand for e-commerce including omni-channel shopping. Looking ahead as businesses account for changes and challenges in the global supply chain, we may see increased demand for stockpiling materials and finished goods.”
