Industrial/office building sales are impressive, too!
No doubt about it, big box industrial is what’s happening. It’s sexy, exciting, all our larger national retailers and e-commerce companies are doing it, and it’s accounting for a large majority of leased space in the Las Vegas Valley. If we include what’s currently planned and under construction, we’ll likely double the number of industrial buildings in our market over 500ksf in the next 18 months! It is arguably the single largest share of the Las Vegas commercial real estate recovery story and with good reason.
Not as glamorous maybe, but at least equally interesting, in my opinion, is how sales have rebounded after the recession. Consider this: in the nearly 500 office building sales and nearly 500 industrial buildings sales (both O/U and investor) that have taken place since 2012, prices have almost doubled (78% increase for office and 85% for industrial). At best, lease rates have climbed 20-30% in the same time frame.
Also equally interesting, the total number of industrial and office buildings sold per year has rapidly declined. There were 150/123 (office/warehouse) sales transactions in 2012, only 63/75 in 2016, and 2017 is shaping up to have even less. Although this could easily be attributed to a declining existing inventory of “for sale” buildings and a near total devotion by developers to only building big box product, I don’t think that’s the entire story. Just as likely is that higher sales prices have had a cooling effect on sales. We are now seeing sale pricing above replacement cost, something we have not seen since 2008! And even though interest rates remain historically low, the cost of O/U financing programs are roughly 10-15% higher than rental rates for comparable lease space.