The Federal Reserve’s proactive rate-hike policy has taken a toll on industrial property sales volume during the first half of thisyear, according to a new report from Yardi Matrix.
Industrial sales volume was $98.5 billion for full-year 2022 and $128.2 billion one year prior, but only $27 billion of sales were posted through the first six months of this year. Strong rent growth (an average of $7.39 per square foot in July, up 7.5% year over year) and low vacancies (4.4% in July) have left many industrial property owners comfortable holding onto their assets for the time being, while an ongoing gap between asking prices and bids continue to hold back sales.
The elevated rate environment hasn’t yet had as big an effect on property prices as it has on sales. The national average sales price through the first two quarters of 2023 was $131 per square foot in 2023, up from $124 during the same period in 2022. Sales prices are elevated in areas like California, with the San Francisco Bay Area ($344 per square foot), Los Angeles ($335), Orange County ($317) and the Inland Empire ($260) posting the highest averages.
Even with the price premium, the Bay Area has seen some of the largest sales volumes thus far, with $1.4 billion in sales through July. The area’s high concentration of tech businesses has helped buoy transactions. The area’s most prominent deal to date was a sale-leaseback, with hard-drive manufacturer Seagate selling its campus to Madison Capital for $260 million, or $452 per square foot.
Logistics continues to be a big driver for the area as well, especially with the Port of Oakland’s status as one of the country’s major ports. Amazon, which has scaled back much of its logistics development as of last year, still bought the former Owens Corning manufacturing facility in Santa Clara in March for $237.8 million ($476 per square foot).
It should be noted that even with the sales slowdown, industrial properties nationwide are still performing better than other asset classes, according to Yardi. Many drivers for growth remain, including momentum toward reshoring manufacturing facilities and an entrenchment of consumer e-commerce habits formed during the depths of the COVID-19 pandemic. Yardi projects that while transaction levels seen during the past two years are unlikely to rematerialize, sales numbers should rebound once inflation eases further and interest rates normalize.