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Historic year continues for commercial real estate sales

Historic year continues for commercial real estate sales

Even as the historic growth rate of e-commerce sales has slowed in three of the past five quarters, the need for industrial warehouse space has not.

According to a new report from logistics real estate firm Commercial Edge, transactions closed in the first 11 months of 2021 totaled $61.6 billion across its markets, setting a new all-time high for sales volume. Sales prices averaged $111 per square foot in November, up 27.4% on a year-over-year basis.

“Despite being the 15th-largest market in the country by total inventory, Phoenix had the third-highest sales volume, recording $3.6 billion in industrial space transactions through the end of November,” a blog accompanying the report noted. “Los Angeles and Chicago are the only industrial markets to surpass the booming industrial hub. Transactions for industrial space in Los Angeles amounted to $6 billion during the first 11 months of the year, while the Chicago sales volume exceeded the $4 billion threshold last month.”  

Commercial Edge covers 120 markets. 

There was 293.9 million square feet of industrial capacity delivered nationally by the end of November, with another 555.4 million square feet currently under construction, representing 3.4% of total stock nationally, the company said. An additional 520.5 million square feet of space is in the planning stages as of December.

In its analysis, Commercial Edge found 12 properties delivered this year that were larger than 3 million square feet, all of them either owned by or leased to Amazon.

Amazon is not the only big retailer that is occupying space. While e-commerce fell to 16% of total retail sales in Q3, down from 19.4% at its peak in Q2 2020, Target and Walmart continue to see increasing e-commerce sales. The difference is how they are fulfilling those orders.


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“Both Target’s and Walmart’s third-quarter earnings noted solid but slowing growth of e-commerce sales, following the national trend, but also highlighted the importance of physical stores in the future of online sales,” Commercial Edge wrote. “Instead of occupying massive distribution centers, these companies use their stores to fulfill orders. Target reported that while online purchases accounted for 17.6% of all sales in the third quarter, stores fulfilled 96.7% of orders. Omnichannel retail — providing customers with a seamless, consistent experience between online and brick-and-mortar — will become more prevalent in the future.”

Rising rents

For those companies that can get warehouse space, they are paying more than ever. Commercial Edge reported that national rents for industrial space averaged $6.37 per square foot in November, a 3.8% increase over the last 12 months. Los Angeles saw the average rise to $10.23, but for those with leases signed in the last 12 months, that figure was $12.33. The vacancy rate in Los Angeles was 3.1%, but in the nearby Inland Empire region, the rate was 1%.

That data coincides with what Rock Magnan, president of RK Logistics Group, told Modern Shipper recently. Magnan said his company is near capacity in the California region. 

RK Logistics is opening two new facilities in Newark, California, but the space is nearly entirely accounted for at this point, he said.


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That lack of space is creating a greater divide between new and existing leases, Commercial Edge said. 

“All three Southern California markets are in the top five for largest spread between average and new leases,” the firm said. “Orange County has the largest spread between new and average lease cost 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 largest in places with tight vacancy rates, a lack of available land for new development or a combination.”

Magnan said the lack of space is also causing some to hold space for the future.

“We have clients who are holding on to space they might previously have let go, even if it’s empty and not immediately being utilized, because they want the assurance of capacity going forward. They don’t see the market loosening anytime soon,” Magnan noted. “We are looking to add an eighth warehouse to meet growing demand in the East Bay and are looking for a ninth facility in the Tracy-Stockton area where rents are a little cheaper.”

The national vacancy rate was 5.7% in November, Commercial Edge said, now 20 basis points on a month-over-month basis. 

Phoenix is the hottest logistics market right now, with more sales volume than either Los Angeles and Chicago despite being just the 15th-largest market by total inventory, the company said. 

The largest sale in Phoenix in 2021 was a $180 million acquisition of a 1.3 million-square-foot facility in Glendale by Bentall GreenOak. The company leased that building to Walmart. Nike also sold a 901,700-square-foot facility for $103.2 million after scrapping plans to produce Nike Air soles in the building. The shoe giant made a nice profit on the building, Commercial Edge noted. Nike purchased the property in 2019 for $69.8 million.

Click for more articles by Brian Straight.

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23 December 2021, 16:00