Covid-19 Adjustment In Industrial Properties – Denver?
Written By: Alexander Shapiro – Broker Associate at Panorama Commercial Group
The Year 2020 brought uncertainty to all aspects of life, but how did these uncertainties affect industrial properties and industrial investments? Through property research, data mining, and hands-on experience, we can see how these properties have been affected.
First and foremost, we learned that industrial properties are somewhat pandemic resistant. While retail and office properties were affected by stay home mandates during state-wide shutdowns, many industrial uses were deemed essential. In Colorado, cannabis, energy, construction, hardware stores/production, mechanic stores/production, and food production were all deemed essential, which means that the large majority of industrial property owners had tenants that continued to work. In addition, E-commerce websites became increasingly popular, which required the need for more warehouse and distribution space.
It has been established that the need for Industrial space has remained strong, but how has the pandemic affected pricing? The best way to see the effects of 2020, is to compare pre-covid and post-covid data. Pre-covid refers to March 1st, 2019 – February 29th, 2020, while post-covid refers to March 1st, 2020 – Current. According to transaction data from CoStar, the sale price per square foot dropped minimally from $138 pre-covid to $128 post-covid. The average building size in these deals increased from 15.2 thousand square feet to 15.5 thousand square feet. The average priced pre-covid deal was just above $2 Million, whereas the average price post-covid was right under $2 million. In addition, the cap-rates went from 7.2% pre-covid to 7% post-covid.
From this information, we can conclude that there is not a Covid-19 adjustment in the sale prices of industrial properties. And considering the decrease in cap rates, some might suggest there is a post-covid premium.
Looking to the Future
One of the main focuses of the Covid relief plan in Colorado is to help small businesses. In this plan, we have seen that small businesses can attain an SBA loan at 90% loan to value with very low interest rates and even waive the first six months of payments on a new loan in 2021. The caveat is that the borrower must occupy 51% of the building. Now is the time for small businesses to move from smaller industrial properties to larger properties where they can lease 49% of the building to other tenants. This way they can still focus on their primary business, while owning a property with little money down, and lease out the remaining portion of the property to pay most of the mortgage.
The low interest rates will increase the number of buyers in the market, which will increase the purchase price of industrial properties. Therefore, we anticipate that in 2021 we will see transaction velocity and prices surpass the pre-covid levels on industrial properties in the Denver market.