Expect continued resilience but on a muted scale for industrial assets in 2024, according to Newmark, which said in a recent report that economic uncertainty continues to exert pressure on consumers, developers, occupiers, and investors.
“Unpredictability in the global supply chain will drive long-term demand for industrial space due to the need for diversified sourcing and ports of entry,” according to Newmark’s National Industrial Market Conditions and Trends Report.
Acute global supply chain developments on leased industrial space in the short-term are likely to be a mild but net positive in 2024, Newmark said.
As for the sector’s capital markets, Q4 marked the sixth consecutive quarter of significant annualized declines in industrial capital markets volume, with users – a small slice of the pie – the only investor group to increase acquisitions in 2023 versus 2022, it said.
Cap rates have risen 100 basis points among private market industrial since the end of 2022. Cap rate and BBB bond yield measures were 5.4% at the end of 2023.
Among all CRE property types, the industrial sector has the lowest share of potentially troubled loans maturing over this timeframe even as record industrial loan maturities are coming due, according to Newmark.
“The larger challenge will come from debt service covenants where 47% of upcoming maturities have a DSCR of 1.25 times or less,” according to the report.
Securitized, debt finance has fallen sharply from its recent peak in 2021 amid a depressed, issuance market while insurance lending has picked up share in 2023. This occurred even more so in the second half of 2023.
“There are also signs of debt funds shifting allocations to industrial,” Newmark reported. “This is consistent with anecdotes coming in from the markets.”
Originations were down 13% year-over-year and 12% quarter-over-quarter in Q4.
However, “Looking forward, industrial liquidity, has good prospects for improving based on the sectors, strong, cash flow, fundamentals, particularly compared with other sectors competing for limited capital,” forecasted Newmark.
