Industrial Real Estate Sales Lead All Property Sectors
Industrial property sales outperformed other major commercial sectors across the country in the second quarter, driven by the popularity of online retailer Amazon and the migration of brick and mortar retailers to consumer-driven, e-commerce strategies.
While sales in all four sectors of the national and Philadelphia commercial real estate market — office, industrial, retail and multifamily — fell from the same quarter of 2017, industrial sales slid just 2 percent. That compares to sales falling 18 percent for retail, 17 percent for offices and 3 percent for multifamily, according to CoStar Group’s quarterly State of the Industrial Market webinar.
This report involving U.S. and Philadelphia commercial properties is being made through Philadelphia commercial real estate broker Wolf Commercial Real Estate, a Philadelphia commercial real estate brokerage firm.
Industrial sales in the U.S. commercial real estate market – including Philly office space, Philly retail space and Philly industrial space – are coming off a record year, contributing to the slight second-quarter drop as many larger industrial portfolios available for purchase already changed hands, CoStar analysts said. The good news is that prices for industrial properties are still climbing and investor appetite is voracious.
“The quantity of bidders has been surprising to us and to the listing brokers,” industry expert Marshall Loeb said in a conference call this past week. “You are getting well over a dozen to 20-something bidders. There is a lot of global capital chasing constructively leased industrial product.”
It is getting difficult to find value in some portions of the national and Philadelphia commercial real estate properties market, Loeb added, particularly outside the five largest segments. In markets such as Phoenix, Denver, Houston, Tampa, FL; and Charlotte, NC; yields have slipped to the upper 4 percent range.
Industrial rent growth outperformed office, retail and multifamily, according to CoStar analysts. Rents for distribution and warehouse space among U.S. and Philadelphia commercial real estate listings rose 5.9 percent from the second quarter of 2017. Rents for food processing, manufacturing, refrigeration/cold storage, showroom, truck terminal, and industrial service space came in even higher, at 6.5 percent. Rents for flexible industrial space that also includes some office space rose 4.7 percent.
Rents in three industrial segments of the U.S. commercial real estate market – including Philly office space, Philly retail space and Philly industrial space – increased more than their counterparts. Office rents were 1.8 percent higher, while retail rents rose 1.5 percent. Multifamily was up 3 percent in the quarter.
E-Commerce has been the best gift the industrial market could have asked for, CoStar industrial analysts said.
“As more and more shopping has been done online, that has been unequivocally positive for the industrial market, particularly the logistics sector,” said Shaw Lupton, senior managing consultant for CoStar.
Logistics construction is running on all cylinders throughout national and Philadelphia commercial real estate listings. About 210 million square feet of space has been delivered in the past four quarters. Demand has kept up with the supply. Vacancies in the sector are decreasing across the board even as new supply has poured in.
“Logistics has seen the most supply not only of any industrial subtype but indeed of any major commercial property sector,” Lupton said. “But demand has also been extremely strong — 2.1 percent demand growth in logistics in excess of supply.”
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