Much like every other commercial real estate sector, the story of industrial-asset borrowing and lending in 2022 was one of overall strength but flagging momentum.
According to MSCI Real Assets, industrial activity for the full year remained high, due in large part to the high-energy dealmaking environment of 2021 carrying over into the first part of the year. Industrial deal volume for the entire 12-month period totaled $151.4 billion. That’s down 15% year over year from the record volume of 2021 (which was driven by e-commerce demand), but it’s nonetheless the second highest sum for industrial investment since 2005.
The fourth quarter, historically speaking, was a strong one, too. Industrial transaction volume totaled $33 billion during the year’s last three months, which was 24% higher than the fourth-quarter average for the five years prior to the COVID-19 pandemic, per MSCI. Portfolio deals and single-asset sales each compared favorably to historic numbers: Portfolio and entity-level sales comprised 37% of all activity while the $20 billion of individual asset sales reported by MSCI was 38% higher than the fourth-quarter average in the five years prior to the pandemic.
But there was a significant slowdown as the year went on, with deal volume growth falling in each successive quarter. Both the third and fourth quarters saw negative year-over-year gains, with Q4 recording 58% less deal volume than the same three-month period in 2021. The big declines are raising questions over whether the historically high levels of movement will continue in 2023. Capitalization rates, for one, are signaling that the market may be losing its footing somewhat. MSCI’s cap rate for industrial properties was at 5.3% during the fourth quarter, up from 5.2% one year earlier and up from the low point of 5.1% in Q2 2022.
Industrial pricing is thus far staying steady, with MSCI’s Commercial Property Price Index for the sector posting a 12.2% annual growth rate in 2022. That pace was the highest among all commercial asset classes last year, although the needle appears to be drifting southward, with the annualized rate of price growth in the third quarter at 6.1%.