Warehouse cap rates have increased across the country by 23 basis points to 6.42% during the second quarter, with the highest regional rise in the East at 6.92%, up 44 bps. The smallest increase was in the Central region, which rose seven bps to 7.13%. Flex industrial property cap rates increased 17 bps to 6.93%, according to Integra Realty Resources' mid-year CRE report.
While leasing velocity slowed in most markets, e-commerce and supply chain needs continue to drive demand in the industrial sector, pushing rental rates higher, the report said. This is especially true in Charlotte, Miami, Boise and Phoenix. Industrial is outpacing other asset classes, including multifamily, the report said.
The sector is not immune to volatility, however. Industrial is experiencing higher vacancy rates in markets like Chicago, Indianapolis, Dallas and Los Angeles due to increased speculative development. Areas with limited new construction have maintained low vacancy rates and limited price volatility. Cleveland and Detroit are both examples of this trend, said IRR.
Markets with industrial land constraints and those with available manufacturing workforce remained strong for the industrial section. Chicago, Kansas City, Raleigh and Northern New Jersey all experienced demand and rental growth thanks to their strategic locations and infrastructure improvements.
Adaptive reuse is gaining momentum as fewer areas in most major cities are available for industrial land expansion, said IRR. As older industrial inventory is being taken offline for adaptive reuse, pricing is boosted for the remaining inventory, according to the report.
The East region experienced the highest regional market rent growth for flex properties, increasing by 3.88% to $13.02, while the West saw the lowest growth with a 2.32% increase to $15.74.
Nationally, warehouse properties saw the highest market rent increase of 3.06%, bringing the average to $7.57, while flex properties had a 2.91% rise, reaching $12.
The West experienced the largest regional increase in vacancy rates for warehouse properties, which jumped by 247 basis points to 6.49%, while the East saw the smallest jump of 35 basis points to 4.09%.
Nationwide, warehouse properties recorded the highest vacancy rate increase of 181 basis points, reaching 6.3%, whereas flex industrial properties only increased 100 basis points, resulting in a vacancy rate of 6.96%, according to the report.