Electric vehicles (EVs) and semiconductor manufacturing are driving industrial real estate construction projects in a commercial real state sector that is starting to feel the impact of Federal Reserve interest rates.
Since the beginning of 2022, 94 million square feet of manufacturing facilities have broken ground, with most of them devoted to producing semiconductors, batteries and EVs, according to CommercialEdge’s National Industrial Report for August.
Hyundai broke ground on a 17 million-square-foot facility near Savannah, Georgia, hoping to start manufacturing vehicles in early 2025. Samsung is building a 6 million-square-foot facility in Austin, Texas, where it will produce semiconductors. Also in Austin, Tesla Inc. is building a 1.4 million-square-foot project where it will produce battery cathodes.
But in other areas, industrial real estate is feeling the impact of the Fed interest rate hikes. While rent growth has remained strong and vacancy is tight, developers are pulling back on building new products, according to the report.
Developers started construction on 177.8 million square feet this year. That’s down from the 614.5 million square feet that started construction last year and the 586.2 million square feet that got underway in 2021.
“The data continues to show the collective deep breath that we anticipated the industrial market taking as it comes off the record growth of the past few years,” CommercialEdge Senior Manager Peter Kolaczynski said.
Check out:
- Elon Musk has reportedly bought 6,000 acres of land just outside of Austin. Here's how to invest in the city's growth before he floods it with new tech workers.
- Investing in real estate just got a whole lot simpler. With as little as $100, average investors are becoming landlords thanks to this Jeff Bezos-backed startup.
Rising interest rates also have slowed sales volume but haven’t affected the price and the properties that do sell. U.S. industrial sales volume stands at $27 billion through the end of July, down from $98.5 billion last year and $128.2 billion in 2021.
Even though volume is down, average sales prices have increased slightly from $124 per square foot in 2022 to $131 in 2023. California has the markets with the highest average sales prices, led by the Bay Area at $344 per square foot, Los Angeles at $335, Orange County at $317 and the Inland Empire at $260.
Because rent growth is strong and vacancies are low, owners are still OK with holding onto their properties. Many institutional industrial owners are not highly leveraged, so rate increases aren’t having much of an impact.
Nationally, in-place rent for industrial properties averaged $7.39 in July, up 7.5% from a year ago. New leases signed in the last 12 months averaged $9.90 per square foot. The national vacancy rate is at 4.4%, down 10 basis points from the previous month.
Read next:
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.
