Industrial didn’t miss a beat in 2020. And it looks like prices in the asset class will continue rising in terms of sales volume and price per square foot, according to CommercialEdge.
In Q4 2020, industrial saw $11.9 billion in sales volume at an average price per square foot of $100 per square foot, which was an 18.2% increase year-over-year. Those were the strongest numbers since CommercialEdge began collecting industrial data.
In January, the average price per square foot for an industrial asset jumped to $145 per square foot nationally. While that number could drop depending on the mix of assets sold, overall appreciation should continue, according to Commercial Edge.
Pacing the sales market in January were New Jersey with an average sales price of $274 per square foot ($327 million total sales), Seattle with an average sales price of $233 per square foot ($100 million in total sales) and Los Angeles with an average sales price of $218 per square foot ($32 million total sales).
On the other end of the spectrum were Cincinnati with an average sales price of $22 per square foot ($1 million total sales), the Central Valley with an average sales price of $29 per square foot ($2 million total sales) and Memphis with an average sales price of $34 per square foot ($9 million total sales).
Driving these increases are large institutions looking to increase their exposure to industrial real estate or get into the sector for the first time. With commercial investors avoiding office and the cost of capital at an all-time low, expect increased competition for industrial assets, which should drive price increases.
Investors can justify those large prices because rents are also increasing, rising 5.1% over the last 12 months to $6.44 per square foot in January, according to Yardi Matrix Expert. The average rental rate for new leases signed in the last 12 months was $7.50 per square foot. If a tenant signed a new lease in the previous 12 months, they are paying a premium of $1.06 per square foot.
The highest rents were found in California: Orange County at $10.88 per square foot (4.2% increase), the Bay Area at $10.54 per square foot (6.6% increase) and Los Angeles at $9.65 per square foot (7.2% increase). On the other side, the lowest rents were found in the Midwest: St. Louis at $3.91 per square foot (1.3% increase), Kansas City at $4.16 per square foot (1.5% increase) and Atlanta at $4.38 per square foot (3.0% increase).
Other recent reports show strength in the industrial sector.
A recent Moody’s Analytics report, for example, found that the warehouse/distribution space absorbed 35.4 million square feet in Q4, which was its highest mark since Q1 2019 when 70.7 million square feet were absorbed. In Q4, occupancy growth was 28.5 million square feet, while it was 24.2 million square feet in Q4 2019. The sector has gone more than a decade since it last experienced negative net absorption in 2010.