If you’re an investor in industrial commercial real estate, California is the place to be right now to make purchases, according to a recent Ten-X Commercial research report.
All five cities in the survey’s top five places to buy are located in the Golden State. Meanwhile, three of the five top locales to sell happen to be in Texas.
From 2017 to 2021, rents in Los Angeles, Oakland, San Diego, San Francisco and San Jose are all forecast by Ten-X to rise in the double digits. San Jose is projected to have the strongest growth during that time, with a 14.5 percent jump, to $8.85 per square foot. Meanwhile, vacancies in any city aren’t expected to exceed 1.5 percent growth. San Diego is only expected to inch up 30 basis points, to 9.3 percent. Los Angeles, currently at 2.4 percent, is only forecast to inch up to three percent.
Overall, San Jose is forecast to have the most favorable NOI growth, at 3.6 percent, during the period. This is due in part to an unemployment rate of 2.9 percent and an information sector that is growing exponentially every year, along with increasing industrial rents and tight product supply.
On the sell side, there is obviously a much different picture. The three Texas cities listed are Dallas, Houston, and San Antonio. They are joined by Baltimore and Cleveland. Dallas’ vacancy rate is expected to be the most impact, increasing 290 basis points, hitting 12.4 percent in 2021. It will also see rents drop the most, by 2.5 percent, to $3.95 per square foot.
Meanwhile, Houston is poised for the largest NOI drop, at 3.4 percent. Both Dallas and Houston are projected to suffer from an expected downturn in demand as well as absorption as the overall industrial sector’s forecasted downturn.
Said Ten-X: “During the forecasted 2019-2020 recession, vacancies are expected rise to 9 percent, 300 bps below their prior peak. Once growth returns, vacancies are expected to recover quickly while rents should bounce back and hit new highs.”
So far so good, though, according to a recent Newmark Knight Frank report. During the first quarter, the overall industrial vacancy came in at 5.3 percent, down from 5.4 percent during the same year-ago period, while average asking rents rose to $6.67 per square foot from $6.24. At the same time, new deliveries were down to 44.4 million square feet from 56.4 million in Q1 2017 and last year’s fourth quarter, which came in at 62.5 million square feet, so new supply on the market might be stabilizing.
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