Last month’s charts covered a snapshot in time. This month’s charts cover the forecast for the coming years. I’ve seen industrial rent growth projections range from being flat in 2022, to increasing 23-40% over the next 5 years. Tenants who just came off of a 5-year lease, are already facing a 10-40% rent increase in the middle of a pandemic. Why the bullishness in the market? The main reasons are the explosive growth of e-commerce, omnichannel fulfillment, third party logistics, warehouse automation, autonomous mobile robots, and industrial coworking pushing on the demand levers for starters.
This chart covers the national market. You’ll see a surprising flat rental rate market forecast for next year. Of course, it’s all about looking at the local market, but this is a good place to start. The moral of the story is that, if you are an executive in the market looking for space, this coming year might be one of the best times to lock in the next long lease with 3% increases before they grow more.
Sale Prices and Cap Rates
The national industrial capital market trends forecast a modest growth forecast for prices this coming year. From what I see out there, the common trend is that yes values are going up, the real value for most investors is in getting their lease rates to bump up to market rates. That was a struggle for some investors over the years, but not anymore. I’m in the lookout for multi-tenant industrial projects for investors to execute on that exact value add strategy. Let me know if you have an interest in partnering on a deal or in finding one for yourself.
We are happy to announce the recent completion of a 5-year lease at this 33,800 SF industrial property, for a long time investor and client. Here we were able to deliver a new tenant within 2 weeks of the prior tenant’s surrender of the premises. The deal terms were $0.90, PSF Gross, with 3% annual increases and two months free rent.
We closed on this 46,363 SF single tenant industrial leased investment for a private family investment trust. After managing the bidding process of a dozen qualified buyers, we were able to find a 1031 exchange buyer who closed all cash with 1031 funds at the asking price. Since then we have gone on to help buyers find a similar suitable property through North San Diego and San Fernando Valley industrial markets.
The largest markets that I look at to search for trends are Southern California (IE, LA, OC), Chicago, DFW, and New Jersey. There was a ton of absorption this quarter across all industrial markets.
You can see on page 7 a running tally of the largest 40 deals that went down in the last 12 months throughout the county. Industrial Coworking companies like CubeWork, ReadySpaces, and Tesseract continue to lease 30,000 – 100,000 SF buildings to split into small spaces and provide temporary space with security and forklifts to share.
The current investment volume is now up to 65% of last year’s volume. There are several transactions in progress that should level up our total investment volume by year-end. Our 12250 Industry St sale in Garden Grove will help out here. We have another one set to close this month up in Valencia for another $7,800,000.
Transaction volume is up 30% over last year in the industrial market nationwide. There is an expected 325 million square feet of leasing that took place in Q3. Despite a continued cautious optimism, positive absorption continues.
The Logistics of Leasing Industrial Property: The Executive’s Guide for Making Informed Commercial Real Estate Decisions is back to my editor right now. I’ve been collaborating with Prologis, XPO Logistics, Ryder Transportation, Geodis, and Ware Malcolm executives to make sure it is packed with useful information. Currently estimated to be completed and on shelves and audiobook March 15th. Thank you all to those who have provided feedback. It takes a lot to get smart people, time, and effort to take my rough drafts and create work that lasts. Your assistance has helped make that possible.
What is your next project? How can I support you? I love talking with people about their plans and helping them turn them into reality. I’m happy to dig into a project with you and help add value in every way possible. Let me know what you have in mind and we can kick around some ideas.