Industrial in Wisconsin falling out of favor? It might look that way on the surface due to the startling dip in single-tenant net lease (STNL) volume, but the sector is expected to remain an investment focal point, according to Colliers’ Global Investor Outlook Report.
Industrial STNL volume fell 23% in 2022, slightly ahead of the asset class’s overall decline of 15%. Volume was down 65% after a record-breaking close to 2021. While this doesn’t look good, in the context of history, Colliers said recent volume is still well ahead of the 2015-19 quarterly average of $6.5 billion. Plus, volume surged in recent quarters, making this year-over-year comparison difficult, based on the report, but it does not suggest that the sector is falling out of favor, as it remains the most liquid asset class overall.
The nature of STNL deals themselves weighs on industrial volume. Long-term leased deals in an environment with rising borrowing costs and inflation become less attractive, according to Colliers. Both median and average cap rates rose on the year, while pricing showed signs of readjusting in the second half.
It was also reported that cross-border, institutional, and REITs were all net buyers in 2022. Institutional capital sources remain the driving force in the market, and they acquired more assets on net in 2022 than in 2021. Private capital remains heavy net sellers, though 1031 exchange buyers helped to backstop the market in the second half of 2022. Colliers reported that the solid fundamental performance of the asset class will continue to attract capital, and there is a wave of newly built assets delivering in the near term. Long-term leased properties at low market rents will prove attractive to buyers again.
