After a four-year cycle that saw industrial prices increase 45%, cap rates decline more than 150 basis points and transaction velocity nearly double, researchers at Marcus & Millichap Real Estate Investment Services say the industrial market is reverting to more normalized conditions. According to the firm’s Midyear 2008 National Industrial Report, investor demand remains healthy, but the focus has shifted from short-term price appreciation to operating fundamentals.

The researchers say velocity slowed the first half of year compared to the same period last year as investors and lenders moved away from lower-quality assets and the secondary and tertiary markets that had experienced some of the most significant price gains in recent years. While primary markets continued to register appreciation, prices in lesser markets dipped to early-’06 levels. Similarly, the cap rate spread between primary and tertiary markets nearly doubled over the past year to approximately 160 basis points. Cap rates for high-quality propertiesin top markets average 6%, while assets in other markets are selling at caps in the mid-6% to high-7% range.

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