Industrial's Low Vacancy Rate Best Among Asset Classes
The industrial sector vacancy rate was 4% in March, at least 30 basis points below every other segment.
There’s plenty of momentum behind industrial sector investing, especially compared to other commercial real estate asset classes, according to a new report from Marcus & Millichap about the first half of 2023.
The industrial sector vacancy rate (4%) was at least 30 basis points below every other major commercial real estate segment in March and transaction velocity has been sharp.
The industrial sector, however, was the only major commercial real estate segment to note a trailing 12-month transaction velocity stronger than its long-term average this June.
“Moving forward, the sector’s historically strong metrics, and capital infusions available from recently passed federal statutes, should continue to buoy investor interest,” according to the report.
Rising vacancy rates, though, will temper the pace of rent growth with limited manufacturing facilities under construction, rents should remain above the historical norm.
Nonetheless, well-capitalized buyers remain active, according to the report, including in tertiary markets, which are gaining overall share in dealings despite “higher lending costs and greater underwriting scrutiny,” which placed upward pressure on cap rates, with yields averaging at 6.4 percent over the last year, Marcus & Millichap said.
GlobeSt.com recently reported that the bid-ask price in industrial was the most balanced in CRE, “perhaps because evidence suggests that rents are strong and help to support the perceived value of buyers.
“Industrial is seeing slight price declines, but the price expectations gap shows that little movement is needed to bring buyers and sellers together, as volume is still elevated relative to history,” MSCI wrote.
The report showed the average sale price over the trailing 12-month period ending in June hovering in the low-$150 per square foot range, a slight tick down from the mean through 2022.