San Diego Industrial Prices Rise During the Pandemic
Industrial investment came to a pause at the start of the pandemic, but since it has rebounded with a roar.
San Diego industrial investment stopped—along with every other asset class—at the start of the pandemic due to widespread uncertainty. Almost immediately, industrial investment rebounded nationally, and San Diego was no exception. The market activity has returned with a roar. Institutional investors are chasing deals in the market, and the surging demand has fueled price increases in the market.
“There was a very brief pause at the start of the pandemic,” Jeff Chiate, VP of industrial capital markets at Cushman & Wakefield, tells GlobeSt.com. “After the pause sellers tested the waters with core offerings to a smaller pool of buyers. These sellers were rewarded with strong interest and pricing on par with pre-pandemic values. Since then there has been significant push by institutional capital to acquire industrial assets.”
Asset pricing is a direct reflection of the increase in demand. There has been growth in tenant demand, leading to strong rents, and in investment demand, which has helped to drive up prices. In addition, the industrial market has illustrated its recession resilience. “We have actually seen prices rise during the pandemic as industrial real estate provides durable strong yields on a risk-adjusted basis,” says Chiate. “There is currently more capital in pursuit of industrial product then we have ever experienced. We expect this insatiable demand to continue as more capital gravitates to industrial and away from office, retail and hospitality.”
As a result, industrial activity and pricing is not only strong, it is also the most sought-after asset class during the pandemic. “Long-term leased core industrial is the most sought-after asset class today,” says Chiate. “Strong market fundamentals and the abundance of historically low debt has continued to compress cap rates for this asset class.”
The industrial sector has grown significantly in the last cycle as a result of ecommerce, but even the recent demand for industrial doesn’t compare to the current demand during the pandemic. “We are not seeing any industrial segment struggle or experiencing any reduction in demand,” says Chiate. “Smaller multi-tenant space is not as robust as larger big box, however demand is still there.”