Tag Archive for: industrial market

Bed Bath & Beyond’s Spillover Effects On Industrial

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Bed Bath & Beyond’s recent bankruptcy filing is not expected to impact retail landlords very much, as many have lined up tenants long before Bed Bath & Beyond actually filed its paperwork.

But it will have ripple effects elsewhere, including in some industrial markets, according to CoStar Group’s May 2023 real estate report.

Bed Bath & Beyond leased 6.1 million square feet of distribution centers throughout the country, most of which in large, modern centers built after 2005. About half already are marketed for lease on CoStar.

CoStar believes that some of those distribution locations will fare better than others and attract new tenants. The reason is that there are only three other existing or under construction distribution centers with space measuring 500,000 square feet or greater, also built after 2000 and within a one-hour drive of Bed Bath & Beyond’s largest Las Vegas distribution center. In contrast, its center within the Dallas-Fort Worth metro market has almost 50 such available distribution spaces within a one-hour drive.

At the same time, several other big chains such as T.J. Maxx, HomeGoods and Ross Stores have grabbed up some of Bed Bath & Beyond’s stores, which could necessitate their demand for more distribution centers down the road.

Meanwhile, while Bed Bath & Beyond’s store closures won’t have that much of an impact on landlords, that is not to say that retail itself hasn’t experienced some setbacks in the first quarter, according to CoStar.

In the first quarter, leasing volume for the retail sector slowed by 2% when comparing quarters and 26% in comparing year to year activity, due to the uncertain economy and absence of available spaces. Altogether, retail tenants occupied 13.2 million square feet on a net basis, which accounted for move outs. This represented the slowest level since 2020 but the ninth consecutive quarters of net demand growth.

Retail property sales also fell—by 40% quarter to quarter and almost 50% year over year due to higher interest rates affecting deal flow adversely. Falling prices have not declined enough to encourage investors to step in.

 

Source: GlobeSt.

Industrial Vacancies Drop, Rents Increase Despite Record New Supply

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Industrial real estate rents increased and vacancies continued declining through November of 2022 despite a record amount of new supply hitting the market, according to the latest U.S. industrial market report from CommercialEdge.

Released just before Christmas, the report found that rents on in-place leases rose 6.5% nationally year over year, while the national vacancy rate dipped to 3.8%.

The new development pipeline also continued to increase, overcoming inflation-driven backlogs and bottlenecks along the supply chain. There were 742.3 million square feet of industrial space under construction as November ended, CommercialEdge reported.

Port markets led in November in both new leases and in-place rent growth. In line with trends seen in the past two years, Southern California in-place rents have climbed at the fastest rate, driven by double-digit growth in the Inland Empire and Los Angeles. On the East Coast, Boston and New Jersey saw the strongest rent hikes.

 

Source: ConnectCRE

Commercial Real Estate Investor Sentiment Signals A Changing Outlook

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As we round the halfway mark of 2022, dynamics are shifting in the commercial real estate investment environment.

Preliminary data from SitusAMC Insight’s second quarter 2022 institutional investor survey shows changing preferences among property segments.

Compared to the previous quarter, the percentage of investors selecting industrial as the best property type over the next year plummeted from 47 percent to 11 percent, citing major concerns that the sector is overpriced. Apartment was the most favored segment among investors; 56 percent of investors ranked apartment as the best sector, up from 21 percent last quarter.

Skyrocketing mortgage rates are putting a crimp in single-family affordability, resulting in strong demand conditions for apartments. Several investors also remarked that apartments were the best inflation hedge among the property types. Retail appears to be making a comeback, with investor preference for the sector climbing to 33 percent from just 11 percent last quarter, citing opportunity for yield plays. Investor sentiment on office, on the other hand, is extremely bearish; no investors selected it as the top property type, with the sector falling from 16 percent in first quarter.

SitusAMC is seeing these sentiment shifts play out in their client work. After so many quarters of seemingly unstoppable growth, the industrial sector is starting to show initial signs of a slowdown, even though fundamentals are still strong. While rents are still growing in most markets and investors are still anticipating widespread above-inflationary rent growth and are underwriting to these assumptions, it is unrealistic to expect another quarter of 8 percent to 12 percent rent growth. Meanwhile, the buyer pool for industrial has been shrinking since the beginning of the year, and some of the larger portfolios are not being financed or traded.

Some Value Deterioration

The value driver for apartments in the second quarter was market rents and rent growth. There is still very strong sales activity, but, as with industrial, there are fewer investors at the table when the bidding reaches the best and final round. Regardless, the fundamentals remain very strong. For the first time in several quarters, low-rise apartments are performing better than garden apartments. Suburban is still outperforming urban, but some urban locations are showing signs of growth.

Investment rates are not decreasing across the board— they are very specific to the assets and the submarket. Gateway markets are lagging but improving. New York is the leader of the gateway markets, and Chicago is seeing improvements in rent growth, which is translating into some value improvement. San Francisco is starting to produce positive indicators as well, and Boston and Seattle are experiencing growth momentum. SitusAMC Insight’s proprietary multifamily affordability indexes indicate improved affordability in gateway markets vs. affordability deterioration in non-gateway metros.

SitusAMC’s retail valuations were slightly up in second quarter. Leasing activity has picked up, with many reflecting short-term mid-pandemic leases that are expiring and being renewed. A couple of large deals involving grocery-anchored centers have signaled very strong cap rates, in the low-to-mid 4 percent range, in strong markets like San Diego and Miami. However, these rates were negotiated at the beginning of the year when the debt markets had not yet changed.

Some SitusAMC clients are repricing their assets down slightly because of the debt market environment. In addition, recent strong retail sales are unlikely to continue as inflation erodes consumers’ disposable income and redirects spending to everyday necessities like gasoline and food. Retail outlets that provide essential goods, such as neighborhood and community centers with grocery anchors, will likely maintain steady income streams. Malls could be hurt by the decline in nonessential spending.

Office values remained relatively flat in the second quarter; most of the increases in values seen were owing to contractual rent increases. Overall office values are skewed, however, by strong growth in life science. SitusAMC is seeing many tenants downsizing. Daily office occupancy is mired around 40 percent, and it might not exceed 60 percent in the long term. There has been a flight to quality as employers try to attract top talent during a tight labor market.

On the bright side, near-term market rent growth has steadily increased over the past year, however, and is getting closer to the standard 3 percent. The strongest growth markets continue to be in the Sun Belt and the suburbs, which are doing better than CBD and gateway markets, but rents are increasing in those areas, as well. There have also been a lot of early renewals—near 10 percent, the highest level since 2015—though this is partly due to leases that expired during the pandemic and were renewed on a short-term basis.

 

Source: Commercial Property Executive

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Commercial Property Sales Up 183% Across South Florida

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Commercial property purchases have shown few signs of slowing down after a banner year, according to a recent report from JLL Capital Market’s Miami office.

South Florida commercial real estate transactions rose to $25 billion in 2021. That’s a 183% increase from the $8.8 billion in transactions across Miami-Dade, Broward, and Palm Beach counties recorded the year before.

The momentum has spilled over into this year. In the first three months of 2022, JLL recorded $6 billion in commercial real estate transactions completed across the tri-county area industry-wide, up 51% from the first quarter of 2021. (Data from the first quarter of 2022 is preliminary and subject to change, a JLL spokeswoman told the Business Journal.) This sharp rise in deal activity could be found across the industrial, multifamily, office and retail sectors.

Danny Finkle, senior managing director of JLL’s Miami office, credits the new wave of transactions to Florida’s “business-friendly environment and excellent quality of life.”

“Institutional investors have recognized this cultural shift and are tailoring their investment criteria to target markets like South Florida,” Finkle stated in a recent JLL release.

A significant portion of the property sales centered on multifamily housing. In 2021, there were $14.69 billion in real estate transactions involving residential rentals, an increase of 277% from the previous year. In the first quarter 2022, there have been $2.75 billion in trades involving South Florida apartment buildings, a 76% hike compared to the year-ago quarter.

In the office sector, there were $5.38 billion in trades in 2021, a 235% jump from the year prior. In the first quarter of this year, there have been $1.05 billion in office sales, a year-over-year increase of 10%.

Meanwhile, retail property transactions rose 136% in 2021 year over year to $3.88 billion in South Florida. Then another $1.28 billion of retail transactions took place in the first quarter of this year, a 186% hike compared to the year-ago quarter.

As for industrial, sales volume increased 63% from the previous year to $2.3 billion in 2021. In the first quarter of 2022, a total of $908.29 million in industrial transactions took place, a 76% leap from the year-ago quarter.

Companies and well-off individuals have been migrating to South Florida in greater numbers due to the region’s popularity, weather, and lack of income taxes, brokers and developers have told the Business Journal. It’sa trend that’s expected continue through the rest of 2022, making South Florida a prime spot for investment. Multifamily properties likely saw the biggest increases because rents are surging at a faster rate in the Miami area than almost any other metro in the U.S.

The migration has tipped e-commerce into overdrive, creating a shortage of warehouse and distribution space as companies seek to fulfill the orders of a humming economy amidst a continuing supply-chain crunch.

JLL stated that its Miami office handled 121% more investment sales, debt, and equity transactions in 2021 than the year before. To accommodate that growth, JLL promoted Cody Brais, Kenny Cutler and Max La Cava to director status.

Headquartered in Chicago, JLL has 3,000 capital market specialistsacross 50 nations. The data in JLL’s report was supplied from Real Capital Analytics, a New York-based real estate analysis company that has recorded $40 trillion in commercial real estate transactions since its founding in 2000.

 

Source: SFBJ

 

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CRE Florida Partners Closes USDA Facility Sale In Pompano’s Gateway Industrial Park

Michael Rauch and Tom Robertson, principals of  CRE Rauch, Lupo, Robertson & Co. have facilitated the sale of 1280-1288 SW 29th Avenue in Pompano Beach, Florida.

The ±42,897 square foot USDA facility was sold to Murvest Fine Foods, a purveyor of meat and specially food products in Ft. Lauderdale, for $3,075,000.

Murvest acquired the facility to continue its next phase of expansion. The facility contains over ±32,000 SF of food processing space including freezers, coolers, cooking and dry storage areas plus approximately ±10,000 SF of air conditioned warehouse. The building was built in1984 and was Boston Market’s main south Florida commissary during the 1990’s. The acquisition by Murvest took over a year to complete.

The acquisition by Murvest took over a year to complete. “We are very pleased to have finally acquired the property, originally one of the most well designed USDA plants in south Florida,” said John Murphy, Murvest’s owner. “While there is much work yet to be done we are confident the facility will serve our needs well”, he said.

“The industrial market is certainly improving even for specialized buildings such as this one and both buyer and seller representation assignments are increasing for CRE”, stated Rauch. Robertson added, “We worked long and hard to complete this transaction and a lot of credit should be given to the buyer and seller for completing a difficult sale.”