Industrial’s popularity in a post-pandemic market has made it one of the tightest property types on Crexi. Despite more inventory hitting our marketplace, demand and completed deals have driven valuations to their highest levels yet.
E-commerce businesses have faced challenges in online sales due to general consumer responses to inflation, but are still a significant channel for spending. We’ve yet to see an impact on the long-term need for distribution and fulfillment space in last-mile and high-logistics markets. At the same time, supply chain constrictions are slowly easing as more U.S.-based manufacturing spaces came online last quarter, further driving demand for the sector.
Industrial Trends Q2 2022 on Crexi
On Crexi, the average industrial price per square foot rose 9% compared to the previous quarter, hitting its highest all-time asking price for three quarters running. This change represents a 21% increase from the prior year and nearly 40% growth from the pandemic’s start two years ago.
Unsurprisingly, an asset in such high demand as industrial means that space is limited. The average occupancy rate for industrial assets on Crexi hit 81.5%: a seemingly low number. Still, when you consider that much of the inventory added to the industrial market is newly delivered supply, the amount of pre-leasing is impressive. For reference, the average occupancy rate was 75.16% just last quarter. While we’ve not yet returned to pre-pandemic levels, space is filling with new deliveries and current inventory, driving up value.
Industrial inventory can barely keep up with demand, though it is certainly trying. Crexi observed a 20% increase in the number of new listings added in Q2 compared to the year’s first quarter (and 38% more than added this time in 2021), with many assets coming from newly delivered construction. Increases were driven by gains in these primary categories, though other subtypes also contributed to the significant inventory increases:
Despite supply increases, the relentlessly climbing valuations for industrial properties have dovetailed with compressed cap rates. In Q2, the average closing cap rate for reported sold properties was 6.1% – still an impressive figure – down 140 basis points year-over-year. The demand keeps coming, thanks to the proven resiliency of industrial assets, and the only thing in its way seems to be rising capital costs. Nevertheless, approximately 2.4% of the assets reported closed in Q2 2022 were industrial properties valued at a total of $17.4B.
Industrial Median Asking vs. Sold Cap Rate by Quarter
Of note, industrial attracted the least overall leads on Crexi last quarter. Lead activity decreased somewhat on the quarterly level but still jumped 19.6% from Q2 2021’s buyer activity, thanks to industrial’s high attractiveness. However, this pattern is pretty typical of the asset class – its high cost reduces the general viable buyer pool to those with access to high capital, which is being continually impacted by rising rates.
Industrial Leasing Trends in Q2 2022 on Crexi
Leasing rates for industrial space rose a modest 5.43% in Q2 to reach $0.91 per square foot per month. Average asking rates grew 16.75% higher than the same period last year, indicating a broader upward trend in asking rates tenants will pay (see improved occupancy rates above). Despite the slight quarterly difference, the change was one of the most prominent rate growths we observed across all asset classes on Crexi.
A similarly consistent rate of industrial inventory hit the lease market last quarter, with the same number of assets added to Crexi in Q2 2022 as in Q2 2021. Breaking this down, we observed a quarterly:
- 18% increase in warehouse inventory
- 22.6% increase in manufacturing inventory
- Interesting 27% increase in R&D inventory
Industrial tenants have yet to be dissuaded by the slowly rising asking rates. We observed only a slight decrease of 1.9% in industrial-related tenant activity, but activity continues to push all-time highs on the platform. For tenants, industrial’s magnetism is unlikely to fade: as long as space becomes available, most occupiers need an industrial footprint and will pay rent.