Industrial real estate trends for the rest of the year may stabilize, says a new report just issued by the Santa Barbara, California-based Yardi Matrix, noting expectations that the sector will “cool somewhat but continue to expand and remain one of the most attractive asset classes in commercial real estate.”
In the report, Industrial Outlook Solid for 2023, the survey notes the industrial sector’s wild ride since 2000: “Demand skyrocketed, vacancies plummeted, and investors drove up average sale prices by more than 50%.
But now the advent of rising interest rates and a looming recession are likely to “slow leasing activity as businesses pause expansion plans and grapple with a higher cost of borrowing.”
Matters may be more complicated by the normalization of the supply chain, which will lead to “less need for increased inventories than was common in recent years, further slowing leasing.”
At the same time, “import flow will continue to drive demand in already tight port markets,” with ports along the East Coast and California needing increased industrial space.
The role played last year by rising interest rates helps explain a transaction volume last year that dropped to around $88.3 billion, down significantly from $125.7 billion recorded in 2021. For all of that, Yardi Matrix suggests that industrial real estate sales volume “could quickly rebound once rate hikes stop and the market adjusts to the new environment.”
Fueling expectations that the industrial sector may shortly prove in better shape than is popularly imagined, the report also predicts that “E-commerce will continue to create industrial demand in 2023, albeit at lower levels than seen during previous years.”
Online purchases are likely to continue their share of retail sales, while the demand for “last-mile distribution facilities will grow, especially for well-located facilities in high-growth markets.”
Currently, there’s 713 million square feet of industrial space nationally that is under construction. Among the top four markets listed by Yardi Matrix: Phoenix, with 55 million square feet; and Denver at 13.4 million square feet.
By Garry Boulard
