Historic year continues for commercial real estate sales
While the historic rate of growth in e-commerce sales has slowed in three of the past five quarters, the need for industrial warehouse space has not slowed.
According to a new report from logistics real estate company Commercial Edge, transactions completed in its markets in the first 11 months of 2021 totaled $ 61.6 billion, a new all-time high for sales volume. Sales prices averaged $ 111 per square foot in November, up 27.4% year over year.
“Although Phoenix is the 15th largest market in the country by total inventory, Phoenix had the third highest sales volume and recorded $ 3.6 billion in commercial property transactions by the end of November,” said a blog that accompanies the report. “Los Angeles and Chicago are the only industrial markets that surpass the booming industrial center. Industrial space transactions in Los Angeles were $ 6 billion in the first eleven months of the year, while Chicago sales exceeded $ 4 billion last month. “
Commercial Edge covers 120 markets.
As of late November, 293.9 million square feet of industrial capacity were shipped nationwide, with an additional 555.4 million square feet currently under construction, representing 3.4% of the total national inventory, the company said. A further 520.5 million square meters of space are planned for December.
In its analysis, Commercial Edge found 12 delivered properties that year, totaling more than 3 million square feet, all of which are either owned or rented to Amazon.
Amazon isn’t the only major retailer taking up space. While ecommerce declined to 16% of total retail sales in the third quarter, up from 19.4% at its peak in Q2 2020, Target and Walmart continued to see rising ecommerce sales. The difference is in how they do these jobs.
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“Both Targets and Walmart’s third quarter results showed solid but slower growth in e-commerce sales that followed the national trend, but also highlighted the importance of physical stores to the future of online sales,” wrote Commercial Edge. “Instead of occupying huge distribution centers, these companies use their stores to fill orders. Target reported that online purchases accounted for 17.6% of all sales in the third quarter, but stores handled 96.7% of orders. Omnichannel retail, which offers customers a seamless, consistent experience between online and stationary offerings, will gain in importance in the future. “
Rising rents
For companies that can get warehouse space, they pay more than ever. Commercial Edge reported that national industrial land rents averaged $ 6.37 per square foot in November, up 3.8% over the past 12 months. Los Angeles saw an average increase to $ 10.23, but it was $ 12.33 for those whose leases were signed in the past 12 months. The vacancy rate was 3.1% in Los Angeles and 1% in the nearby Inland Empire.
This data is in line with what Rock Magnan, president of RK Logistics Group, recently told Modern Shipper. Magnan said his company was nearing capacity in the California area.
RK Logistics is opening two new facilities in Newark, California, but the space is currently almost full, he said.
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That lack of space is creating a wider gap between new and existing leases, Commercial Edge said.
“All three Southern California markets are in the top 5 for the largest range between average and new leases,” the company said. Orange County has the largest range between new and average leases at $ 2.58 per foot, followed by Los Angeles ($ 2.10), Nashville ($ 1.94), New Jersey ($ 1.86) and the Inland Empire ($ 1.82). In general, these spreads are greatest in locations with little vacancy, a lack of land for new developments, or a combination. “
Magnan said the lack of space also means that some hold space for the future.
“We have customers who hold onto spaces that they may have previously given up, even if they are empty and are not used immediately, because they want security for the future. They don’t see the market easing anytime soon, ”noted Magnan. “We’re looking to add an eighth warehouse to meet growing demand in the East Bay and are looking for a ninth warehouse in the Tracy-Stockton area where rents are a little cheaper.”
According to Commercial Edge, the nationwide vacancy rate was 5.7% in November, now 20 basis points month on month.
Phoenix is currently the hottest logistics market, with more sales than Los Angeles and Chicago, despite being only the 15th largest market by total inventory, the company said.
The largest Phoenix sale in 2021 was Bentall GreenOak’s acquisition of a 1.3 million square foot facility in Glendale for $ 180 million. The company leased this building to Walmart. Nike also sold a 901,700 square foot facility for $ 103.2 million after abandoning plans to manufacture Nike Air soles in the building. The shoe giant made a nice profit with the building, Commercial Edge noted. Nike bought the property in 2019 for $ 69.8 million.
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