Lack of Product Slows Industrial Sales

NEWPORT BEACH, CA-Despite ranking at the top of Real Capital Analytics' list of industrial investment-sales brokerages for first-quarter 2013, as GlobeSt.com reported last week, CBRE—like other firms in the field—is finding that a dearth of product for sale has led to fewer properties changing hands in the last year. Kurt Strasmann, CBRE's senior managing director, tells GlobeSt.com that for the last three to four months, “investment sales for industrial have been very light. There's very little product for sale, but next year should be better.”

Strasmann says that rent growth is on the rise—some industrial owners are looking at potential rent growth of between 8% and 10% over the next couple of years—and the vacancy rate for industrial in Orange County is at a meager 3.5%, the second lowest in the nation. Rather than looking to sell, these owners are more of a mind to hold onto their properties and take advantage of potential rent growth. There's not a lot out there, and not a lot of owners want to part with their properties right now.”

These fundamentals are priming the pump in the development cycle. “Due to lack of product, increasing rental rates and sale prices, there's an awful lot of development going on,” says Strasmann. “There are 300 acres of active industrial spec opportunities in Orange County. Development is certainly very active, and the thought process behind that is the demand for high-quality product.”

Users of straight industrial proprieties are seeking specific features for the space they occupy, such as high clear heights, which is not easy to find. Therefore, properties that meet these qualifications are trading for high prices. “If you had an at-market-rent, high-quality, class-A product with a stable tenant, you will sell that property in the 5 to 5.25 cap range—that's really aggressive pricing, and it's indicative of what people feel about potential rent growth in Orange County," says Strasmann. "What people feel about Orange County is very strong.”

Strasmann adds that there's tremendous demand from users to purchase and lease out highly efficient buildings. “All the fundamentals look very good on the industrial side.”