Industrial Capital Market Update – February 2023
United States Market Overview
The industrial sector maintained relatively stable transaction activity, with $124 billion in sales volume during 2022 compared to $125 billion in 2021. Cap rates averaged 6%, with prices around $147 per square foot.
Institutional demand continues to outpace available inventory. However, a significant bid-ask gap persists as buyers seek discounts reflecting increased financing costs, while sellers maintain confidence in performing assets generating strong rental growth.
Market analysts predicted a sluggish first half of 2023, which has materialized. The Prologis-Duke Realty acquisition ($23 billion, finalized Q4 2022) substantially influenced quarterly data; excluding this deal, Q4 represented the slowest period since 2018.
Sale-leasebacks remain attractive for owner-operators realizing substantial capital gains without market-timing risk. However, investor preferences have shifted toward shorter lease terms rather than traditional long-term structures, allowing for future market adjustments.
Buyer appetite for vacant properties has diminished considerably. Investors increasingly require income-producing assets with existing tenant occupancy.
Regional Performance
Orange County: Sales reached $3.2 billion (2022), up from $2.7 billion (2021). Average cap rates stood at 4.3%, with pricing averaging $340 per square foot. Land values peaked at $8 million per acre ($183 PSF) but have declined approximately 25% anecdotally.
Inland Empire: Transaction volume totaled $10.5 billion, including $3.2 billion from the Prologis-Duke deal. Average cap rate: 3.7%; average pricing: $256 PSF. Market values increased 15.8% annually over five years with minimal first-generation property sales.
Los Angeles County: Sales volume jumped to $9.9 billion from $5.8 billion (2021). Cap rates averaged 4%, with pricing at $360 PSF. Investors purchasing value-add properties achieved significant returns within three-year periods.
Inland Empire Availability
Current market conditions show extreme scarcity. Within a specific 100,000-300,000 SF search, only 59 available spaces exist among 120 listed properties; realistic options narrow to 37 spaces. Pricing ranges from $1.40–$2.10 PSF, averaging $1.77 triple-net. Sublease opportunities present better value, though landlord sentiment remains optimistic despite muted transaction activity.
Lease Renewal Trends
Renewal leasing surged to 34% of total activity in Q4 2022, compared to consistent 24% quarterly averages previously. The Inland Empire experienced particularly elevated renewal rates at 62% due to large industrial property concentration.
Strategic lease renewal management enables landlords and tenants to materially improve economics, avoid costly relocations, and implement operational efficiencies through warehouse automation and material handling optimization.
Resources
Market reports available for Los Angeles County, Orange County, and Inland Empire regions. Two books published: "Industrial Intelligence: The Executive's Guide for Making Informed Commercial Real Estate Decisions" and "Industrial Income" (targeting July 2023 release).
Podcast episodes featuring California Business Property Association leadership and advanced credit underwriting techniques launching within 30 days.