Industrial Real Estate Shining in a Challenging Market

Despite the negative headlines surrounding commercial real estate, the industrial warehouse sector remains a bright spot. Industrial warehouses have been in high demand for several years, and while the number of new transactions has slowed down, the sector continues to outperform. According to the latest report from research group CommercialEdge, the average industrial rents have increased every month over the past year and reached an all-time high of $7.15 per square foot in March. Vacancy rates are also extremely low at 3.9%. Nationally, 637 million square feet of new industrial space, including warehouses, were under construction as of March.

Brian Lawrence, Senior Vice President at Univest Bank and Trust Co., expects these numbers to remain high in the near to medium term. “We have seen a significant increase in demand for warehouse space with the uptick in use of e-commerce and delivery services since the start of the pandemic,” he says. The growth of delivery services, especially for groceries and household items, is driving the need for last-mile warehousing. Another trend driving demand is the need for nearshoring. Many companies fresh off pandemic-induced supply chain woes are looking for space to bring storage onshore.

Institutional investors are being responsive to these trends, and warehouses are taking up a larger proportion of global property funds. This month, Blackstone made a bid for a listed UK property investment trust offering landlord Industrials REIT (MLI) a 42% premium to take over its warehouse REIT in the UK. There are also a large group of CMBS lenders in this space including insurers and banks who are still transacting even though the cost of capital has increased.

There are some headwinds in the development space for new industrial property, however, as some communities are pushing back against industrial sprawl and are limiting how many warehouses can be built and where. This lack of new supply could lead to a boon for investors that could see elevated rents as the result of higher competition for space.

It is clear that industrial warehouses are positioned to perform well over the long-term, and Peakview Investments will shift its investment focus and criteria to tap into the persistent market tailwinds.