A lot of investors sat on the sidelines for the beginning of COVID-19 pandemic. It was understandable, there was a lot of fear and uncertainty. Buyers who came back quickly have benefited from grabbing properties before the market took off.
Truth be told, the new normal is still evolving. Though with the election out of the way, and residents determined to get back to work to make things happen, there are some pretty clear trends investors can expect to see next 12 months.
The main themes of 2021 seem likely to be much the same as 2020. The difference is that we can see it coming. The old cliche of “hindsight is 2020” is very literal and applicable here.
Two main trends that are expected to continue in 2021 are the “work from home” and “ecommerce” trend. As the economy normalizes, it’ll be interesting to see how these two trends evolve. Would most people go back to work in an office? Would consumers continue increasing their buy online habits?
So, how can we expect these things to impact industrial real estate? Here’s a look at what to expect from industrial real estate in 2021.
Interest Rates
Considering the recent dings in real employment and economic output, the Fed would continue to keep interest rates lower. Yet, a variety of increased risks for lenders and a new government administration may actually cause rates to slightly increase instead. If you haven’t refinanced yet, now may be a good time to do so.
Lower interest rates also mean more demand for income producing properties, including industrial buildings, which should push sale prices higher benefiting Sellers.
Taxes
America might be bracing for a tax tsunami in the coming years. Most local government agencies have spent a lot during this Covid-19 pandemic, in addition to all of the other taxes already set to be instituted, this money has to come from somewhere. Probably state income tax, property taxes and sales taxes. Investors will have to find ways to deal with this, including pricing these costs into asset purchases and the offers they make on them.
Demand
There has been no shortage of demand for industrial and warehouse properties. That is unlikely to change in the near future. Well-priced properties have been and will continue selling swiftly and in record time. Additionally, there will be more consolidation among large industrial investment companies, for example, Prologis can buy another competitor. Or Blackstone acquire a large industrial REIT.
Investment in real estate overall also continues to rise. Many big CEOs are cashing out of their tech and pharma stocks. Much of that is going to be diverted into real estate. Just look at Jeff Bezos who just sold another $3B in Amazon stock. The second time in just a few months. Pfizer’s CEO also sold a sizable amount of stock on announcing a vaccine.
Rents & Sales Prices
For now, although rents and property sales prices seem to be moving higher, they might take a K shaped trajectory soon. Demand from users and investors keeps pushing sale prices of industrial space higher and inventory is not keeping up with demand. Average sale price for industrial space in Miami was $151/SF in Q4 2020, staying close to all time high. On the leasing side, inventory is plentiful, specially for spaces over 50,000SF, favoring tenants. Landlords have been resistant to dropping lease rates; offering lease concessions instead (free rent, tenant improvements allowances). The new wave of construction will bring more space to the market and maybe push landlords to lower lease rates. On Q4 2020, average lease rate for industrial space in Miami Dade was $12.80/SF industrial gross.
Stay tuned as we follow the industrial real estate trends of 2021!
The Industrial Team at ComReal is happy to assist businesses and owners in the leasing and sales of Industrial Properties. You can contact them at 786-433-2380.