GlobeSt.com EXCLUSIVE: Industrial Sales Keep Up Pace From Banner Year

"The appetite of this buying community has strengthened so much that the yields are dropping to historical lows for industrial real estate," Josh McArtor, vice president for Dallas-based Trammell Crow Co., tells GlobeSt.com. Last year brought 84 sales for $693.38 million or an average of $39.50 per sf, closing out at a 7.95% cap rate overall and 125 basis points below 2003.

Last year set a record in the number of transactions, but not in pricing. This year could break records on both fronts. Last year's Q1 pulled in $188 million in 13 sales with an average 8.4% cap rate whereas this year's first three months raked in $215 million in 16 trades at an average 7.65% cap rate, according to McArtor.

"If there is any term on the lease in place, people have been disregarding replacement value," McArtor says, "and have accepted cash-on-cash yields due to the lack of alternative investments." The first quarter's top buyers were the Denver-based Dividend Capital Trust Inc., San Francisco's Rreef Funds LLC, Cabot Properties Inc. of Boston and the region's local kingpin, Crow Holdings.

McArtor, tracking industrial sales of 30,000 sf or more, says occupancy isn't weighing heavily on the decision to buy. On average, properties are 74% leased. Last year, 21% of the sales were properties that were at least 80% vacant, he says. The upshot is "it's an indication certain investors and users believe the fundamentals have likely reached the bottom of the cycle," he explains.

There is roughly 2.5 million sf now on the market. "There will be several state-of-the-art distribution centers traded this year," McArtor says. And, several of those facilities that are up for grabs are less than a year old with top-name national corporations in place for the long term.

McArtor's crystal ball points to South Dallas as the hotspot for this year and again in 2006. "If my money's betting on, the big absorption will be in South Dallas," he says.