Initial estimates of industrial investment activity suggest that a little less than $60 billion exchanged hands in 2023, approximately 15% below the market's 10-year average. Comparatively, trailing 12-month sales volume peaked in the second quarter of 2022 at $140 billion, but has since fallen close to 60% from the recent highs.

This slowdown highlights the lingering impacts of rising interest rates and the commensurate uncertainty around asset pricing as rent growth has begun to decelerate.

However, private capital remains at the forefront of buying activity, fueled by a steady tide of fresh entrants to the sector and existing operators' efforts to beef up their portfolios. Not to be left behind, institutional and public REIT investors persist in their pace of acquisitions, homing in on first-class developments and prime locations.

Yields on stabilized industrial investments continue to price in a tight range over treasuries, which began falling in the fourth quarter due to slowing economic growth and the market's expectations of rate cuts beginning in the first half of 2024.

Properties offering in-place rents substantially below market can still see cap rates in the upper 4% range, but a growing portion now trades in the low 5% spectrum. These yields were once seen in the low- to mid-3% range before the Federal Reserve's rate hiking campaign began in 2022. By contrast, secondary markets and deals with a restrained mark-to-market opportunity can see pricing in the 5% to 6% band, as investors in these markets are less willing to apply negative leverage beyond the first couple of years. At the top end of cap rates, deal profiles that lack a sizeable rent growth story and rely on bank or CMBS debt can find yields in the 6% and 7% range.

In October, Faropoint purchased two 1970s vintage business parks outside Newark, NJ, from a venture between Camber Real Estate and Advance Realty Partners. The 770,603-square-foot, 10-building portfolio traded for $144.5 million, or $188/SF, at a 6.25% cap rate. The transaction signifies a growing trend of industrial investors acquiring shallow-bay product in established locations to avoid competition with the growing supply of distribution centers hitting the market.

In the same month, Terreno Realty (NYSE: TRNO) acquired a two-tenant, 112,363-square-foot shipment facility in Redondo Beach, CA, from Link Logistics, a subsidiary of Blackstone. The 1968-vintage, 100%- leased project was priced at a 5.3% cap rate, which equated to $45.7 million, or $407/SF. The property is situated immediately west of the 405 freeway north of Manhattan Beach Boulevard, and it checks several boxes for institutional capital as this buyer profile continues to be drawn toward infill locations in coastal markets.

After eight quarters of declining transaction volume, 2024 may see an uptick in sales velocity if the 2008-2009 commercial real estate downturn serves as a guide. During that period, the number of closings fell for seven consecutive quarters before rebounding 74% over the ensuing two years.

Additionally, the $24 billion in maturing CMBS loans this year could stimulate sales activity as the interest rate environment will likely be much different from their rates at origination. Fortunately, a substantial amount of equity has been built up in recent years, and a near-term maturity may serve as a catalyst for owners to take profits and recycle the capital into new ventures

Here are several graphs illustrating the current national commercial industrial market in The United States of America: