Industrial and Multifamily Sectors Stay Resilient Amid Economic Headwinds



Rent growth in both the industrial and apartment sectors continue to turn heads, according to Lee & Associates report.

By Brian A. Lee | November 14, 2022 at 03:45 AM

The current economic headwinds have been a cause for alarm in certain sectors. Not so for industrial and multifamily, however. With US industrial vacancy at 4% and multifamily’s pipeline tightening, the data from Lee & Associates’ Q3 2022 Market Report shows both sectors have room for rent growth.

It’s a story about fundamentals that point to continued strength, according to Jeff Rinkov, CEO of the broker-owned real estate services firm.

Industrial Strength Continues Beyond Amazon

“The industrial leasing story continues to be the strongest theme maybe in all of commercial real estate with demand remaining robust,” Rinkov said. “We see pre-leasing of Class-A buildings and a rising tide of rental rate growth for B and C buildings that are well-located. Historic rate increases and rental growth are supporting the development and have been supportive of higher land prices for the last several years.”

Industrial vacancy at end of the third quarter settled at that 4% number, up 10 basis points from Q2, according to the Lee & Associates market report. Approximately 850 million square feet of industrial space are under development in the US with about 38% pre-leased.

“How the other 62% of that product gets leased and how quickly I think will tell the story for the next 18 months,” said Rinkov, adding that there is space coming back to the market, led by Amazon shedding millions of square feet of warehouse capacity, but it is getting absorbed very quickly and at “higher and higher rates.”

Stout industrial rent growth has been quite evident in US port-adjacent markets, but Rinkov highlighted a 1.194 million-square-foot industrial leasing assignment by Lee & Associates in Columbus, OH, as a strong testament to sector strength. The fact that a distribution center in a secondary market was quickly absorbed by a large logistics use shows the depth of demand, both for developers searching for land and tenants looking for logistics space.

Multifamily Moves

Although apartment rent growth of 5.7% through Q3 was down considerably year over year, it’s still more than twice the annual average rate of 2.5% over the past decade, Lee & Associates reported.

“The multifamily sector has seen a very compelling story for rental increases and rent growth,” Rinkov said. “As a general economy, we’re underhoused so housing development that is happening is being well received. We do see an interest in people returning to CBD and metropolitan submarkets.”

Lee & Associates reported a 29% year-over-year increase in the average per-unit sale price to $233,974 at the end of the third quarter.

“Multifamily seems to be the asset class where there’s historically been the greatest amount of liquidity, cap rate compression, and the most voluminous trading because of the differentiation in the types of ownership, from the institutional to regional and all the way down to mom & pop owners,” Rinkov said. “Well-located product is going to continue to be developed and absorbed at very significant rental rates.”

Economic Uncertainty Still Lurks

Much economically is yet to be determined as we approach 2023. Risk is always present, with the cost of development capital being a real concern, Rinkov asserted, but industrial and multifamily asset classes have proven to be resilient.

“Monetary policy and the increased cost of funds along with the inflationary environment obviously present risks, but I believe the strengths of these two asset classes will win the day,” he said.


Jenny Morgan
Lee & Associates
(323) 922-3832