Industrial Same-store NOI Saw Highest Increase of Reporting Sectors Through 2023

Industrial REITs own and manage industrial facilities and rent space in those properties to tenants. Some industrial REITs focus on specific types of properties, such as warehouses and distribution centers. Industrial REITs play an important part in e-commerce and are helping to meet the demand for rapid delivery.

After a two-year hiatus, Amazon has re-entered the industrial space markets, which is good news for industrial demand. Green Street reported that Amazon leased four one-million-square-foot warehouses and approximately 20 smaller properties in the first quarter of 2024. Last year, Amazon initiated a new strategic plan where it divided the U.S. into eight geographic regions and increased focus on same-day delivery properties.

For the past decade, the industrial sector has enjoyed strong demand with analogous supply responses. Similar to apartments, robust demand and lofty rents have accelerated industrial net deliveries to historically high levels in 2023. At the same time, net absorption dropped off precipitously. According to CoStar, the last quarter of 2023 marked the sixth straight quarter of negative industrial excess net demand.

Despite softening fundamentals, data from Nareit’s T-Tracker® still show some strength in industrial property operations. As of fourth quarter 2023, average year-over-year same-store net operating income increased by 7.8%, the highest level among reporting sectors. Industrial REIT balance sheets remained well-structured. On average, fixed rate and unsecured debt accounted for 91.9% and 88.1% of total debt, respectively.

In the fourth quarter of 2023, Nareit T-Tracker and National Council of Real Estate Investment Fiduciaries (NCREIF) data show that, on average, industrial REITs have maintained higher occupancy rates than their private real estate counterparts. Industrial REITs also continued to remain attractively priced compared to private real estate. In the industrial space, REITs currently appear to be a bargain, offering more for less.

• 4.2%: In the fourth quarter of 2023, the industrial REIT implied cap rate was 4.2%, approximately 70 basis points higher than its private real estate counterpart.
• 96.9%: T-Tracker data indicate that the average industrial occupancy rate was 96.9% in the last quarter of 2023; it has exceeded 95% for 34 consecutive quarters.
• 5 billion: CapitalOne Shopping Research indicated that Amazon Logistics shipped nearly five billion packages in the U.S. in 2022, roughly 23% of all packages shipped.

Below is a list of Nareit member companies from the industrial sector.