It’s a Seller’s Market in the Industrial Sector, But Investors Are Undeterred
With industrial properties still seen as low risk and continued rent growth, capital continues to pour in.
March 22, 2021 | Patricia Kirk | Wealth Management
Soaring demand and constrained supply have caused industrial property values to rise for the past decade. But with the pandemic accelerating an increase in online sales, the industrial commercial property price index (CPPI) rose 8.8 percent over the previous year, with warehouse values surging 10 percent and flex industrial values rising 6.5 percent, according to a recent report from real estate date firm Real Capital Analytics (RCA).
And it’s not over yet, suggests Alan Pontius, senior vice president and national director with the office, industrial and healthcare divisions at real estate services firm Marcus & Millichap. He notes that operational expectations for industrial continue to be more bullish than in any other sector. “Expectations remain high for demand and rental growth, with any perceived supply risk limited to only a few markets and not seen as long term,” he says.
Additionally, strong capital inflows are causing cap rates in the sector to compress. At the beginning of the year, cap rates on industrial assets averaged about 6.0 percent. Pontius forecasts that cap rates will continue to fall and might eventually stabilize in the 3.4 to 3.7 percent range. With pricing at all-time highs and cap rates low, sales volume on industrial properties might be expected to cool down, but that hasn’t happened. Single-asset sales in the sector surged by 16 percent year-over-year in the fourth quarter of 2020, to $22.8 billion, according to RCA. Overall warehouse sales volume rose by 4 percent to $30 billion.
