The second quarter of 2024 ended on a high note with consensus forming around the direction of interest rates. Borrowing costs peaked this year in the 7.5% range and have since fallen, with debt available today in the low six percent range. Problems persist for owners of larger(over 80K square foot) warehouses as tenant demand remains sluggish. For smaller spaces demand remains robust, although owners should expect longer lease up times than might have been experienced in 2022. Expect tenants to flock to quality spaces, and demand renovations as part of lease negotiations.
The bid/ask spread between buyers and sellers is decreasing. Falling rates and a positive outlook are bringing buyers back to the market. Sellers are capitulating as time drags by, and expectations of a quick recovery diminish. We are having numerous calls with owners who had put off selling, that are now considering a sale in late 2024 or early 2025. This is especially true for private owners, who are often motivated by lifestyle decisions. We expect to see more inventory on the market in 2025 than 2024, more sales velocity and better options for buyers. Quality 8+ cap rate industrial deals are available in New England today. Many properties are selling at cap rates 50-100 basis points cheaper than peak pricing seen in 2022.
Lending options remain available, however they often come with the stipulations investors have come to expect in this market. Loan to Value ratios are lower, lenders are escrowing for differed
maintenance items, and personal guarantees are frequently required. Large differences in interest rates between lenders are common. Now more than ever it is important to shop lenders, whether independently or with a professional mortgage broker.
During the second half of the year investors should watch for lowering interest rates, volatile vacancy rates, and potentially increases in for sale inventory. Expect vacancies to take a bit of time to fill. As such, now might be a good time to “make that deal” with your existing tenants. Broadly we expect the second half of 2024 to be a good time for both buyers and sellers to achieve their investment goals.
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