August 11 - 2022
**This research piece is created with CompStak’s exclusive data
As a follow-up to KC Conway’s blog, CRE Headwinds - Rising "IRE": Inflation, Interest Rates, and Employment Cuts, this week CompStak is presenting four CRE trends to watch during this period of rising “IRE” based on CompStak’s best in class industrial and office lease transaction data. This week we are covering two trends in the industrial space—stay tuned next week for two trends to watch in the office market.
Interested in hearing more on these topics? Please join us on September 15 for a webinar featuring Michael Mandel, CEO of CompStak and KC Conway, Principal/Co-Founder, Red Shoe Economics.
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The industrial real estate market has accelerated dramatically through the pandemic, as an increase in e-commerce and supply chain pressures pushed demand for space and rents to new heights. To date, industrial rents have shown few signs of deceleration as a result of economic factors. In fact, many markets have experienced industrial base rent growth year over year, outpacing inflation.
CompStak’s lease transaction data shows that annual escalations built into industrial leases are on the upswing. CompStak evaluated annual escalations for industrial transactions in select major markets including Los Angeles – Inland Empire, Atlanta, Northern and Central NJ, Chicago metro, Philadelphia, Central PA, Southern NJ, Delaware, and Dallas-Fort Worth and found:
Triple net is the most common type of lease type in industrial real estate. Traditionally, the triple net lease becomes less attractive during periods of rising inflation as longer term lengths do not allow landlords to adjust rents upwards to match or chase inflation. On the other hand, the triple net lease passes operating expenses and maintenance costs to the tenant, an advantage to landlords in a period of rising costs and inflation. In the industrial market, cap rate compression for single tenant net lease properties reached historic lows in early 2022, but experts warn this trend could soon reverse due to pressure from rising interest rates.
CompStak’s industrial transaction data demonstrated the following:
Stay tuned for next week's key office trends to watch.
What does this all mean for CRE in the second half of 2022? Register for our webinar here.