Pricing for industrial distribution and warehouse space climbed in many US markets during the past 12 months, as investors continued to focus on markets tied to large population centers, logistics and e-commerce space.
According to an Avison Young industrial investment review, prices in Dallas increased the most out of the major industrial markets reviewed, up 20% to $85 per square foot, with Miami, New York/Northern New Jersey, Los Angeles, and the Inland Empire also recording increases.
“The industrial market has seen significant investment activity over the past five to seven years and continues to attract a steady flow of capital, particularly in large urban markets tied to e-commerce growth,” says Erik Foster, Avison Young principal and leader of the firm’s national industrial capital markets group. “From institutional investors to REITS and private investors, we’re seeing a continued focus on acquiring well-located distribution and warehouse assets with strong tenancy.”
Strong population growth in North Texas has generated demand for a wide range of industrial space and has propelled Dallas into the investor spotlight. That market has added millions of square feet of industrial space in recent years, a draw to tenants as well as investors.
Dallas Market Snapshot:
Top sales of the third quarter included Stoneridge Business Park, a 903,755-square-foot four building portfolio at 8801 Autobahn Dr. in Dallas, which AEW Capital acquired in July from Realty Associates Fund for an undisclosed sum as part of a 13-building portfolio, and At Home’s 528,000-square-foot warehouse at 1600 E. Plano Parkway in Plano, TX, which Broadstone Net Lease bought from Angelo Gordon as a part of a 23-building portfolio for $61 million.
“Population growth creates consumption which is tied to distribution,” Foster tells GlobeSt.com. “With the advent of e-commerce, the typical consumption-led distribution space is going to be growing fast.”
Many of the top sales in Dallas were portfolio sales of well-leased buildings. Institutional investors made up 45.8% of industrial buyers in Dallas in the first three quarters of 2019, while private buyers purchased 32%. Foreign investment accounted for 12.2%. A look at sellers in the same time period shows private investors (40.4%) almost tied with institutions (39.1%). Foreign investors sold just 7.9% of industrial assets. In both categories, the remaining investors were a mix of REITS and others.
“As the world looks to the US as a safe space in which to invest, solid fundamentals in the top markets are desirable for the global investor,” Foster tells GlobeSt.com.
Pricing in the New York/Northern New Jersey market, the largest US population center and a strong area for port activity, rose 15.9% to $167 per square foot. Miami, with its ties to South Florida’s population growth and port activity, had an increase of 14.8% to $140 per square foot.
The top investors in the surveyed markets include well-known entities such as the Blackstone Group, Prologis and CDPQ to foreign investors from Canada, China, Singapore, Spain and others.
Transaction volume rose the most in the Miami industrial market, where $3.28 billion of industrial real estate changed hands during the last 12 months for an increase of 48.7%. New York and Los Angeles also had significant volume gains of 34.9% to $7.4 billion and 18.8% to $12.4 billion respectively. Chicago and Dallas posted 15.6% and 19.5% declines, respectively, following strong activity in recent years.
“Investors are looking more at core markets at this stage in the economic expansion and are finding that many assets have traded hands, including many that were sold as part of large portfolio sales,” said Foster. “At this stage in the economic cycle, there also are some investors taking a pause after significant acquisition activity.”
Across all markets reviewed, many of the top sales included large distribution centers and warehouse space with high occupancy. Data centers were also a hot commodity, drawing higher prices per square foot in many instances.
