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'Somebody Lit A Fire': Interest Rate Stability Reignites Industrial Deal Flow

As interest rates stabilize, investors sitting on mountains of cash are starting to spend their money, and one sector in particular is enjoying the spoils.

After months of muted transaction volume, industrial loans made a triumphant comeback during the first few months of the year.

Despite interest rates remaining at a two-decade high of roughly 5.3%, they are no longer moving. And that alone has been enough to get trades flowing again, industrial players told Bisnow.


“A lot of groups, with the interest rate volatility and uncertainty, were sitting on the sidelines, not wanting to go make a bad bet or a bad play,” said Pauli Kerr, director of capital markets in JLL’s Dallas office. “Whether it’s good or bad, with stability, groups understand where to price deals.” 

Industrial loans saw a 63% increase in volume in the first quarter, driven mostly by $7.5B in CMBS refinancing activity by Blackstone-affiliated borrowers, according to Mortgage Bankers Association data reported by CRE Daily. By contrast, lending volumes across most other assets declined, with interest rates still too lofty and fundamentals too shaky for investors to take the plunge.

Industrial, though, has been battle-tested, having maintained steady rent growth and leasing demand since the Federal Reserve began its monetary tightening campaign, said Jack FrakerNewmark president and global head of industrial and logistics in the capital markets division. It was the only sector to appreciate in value between mid-2023 and early 2024 despite the elevated cost of debt, according to an Avison Young report.

Consumer goods spending is also on the rise, giving borrowers an added layer of confidence in the sector’s profitability.

“A lightbulb went off over the heads of these investors, somebody lit a fire, and they all started to get back into the game immediately,” Fraker said. “All the best and brightest institutional investors are trying to buy industrial right now.”

The borrower profile is varied, with private equity firms, real estate investment trusts, pension funds, private developers and global investors jumping back into the fray, Fraker and Kerr said. Sellers are also responding to interest rate stability, with core funds, or groups that offer the most stable and consistent returns by investing in high-quality, well-located assets, making a noticeable comeback.

“We’ve started to see more core funds selling true core deals and merchant-build developers coming out [to sell],” Kerr said. “They’re really trading relative to where you can get debt today.”

Prologis expects to raise between $800M and $1.2B through industrial property sales this year, Chief Financial Officer Tim Arndt said during a Q4 earnings call. The company also plans to break ground on between $3B and $3.5B worth of new developments. 

Even Amazon has announced plans to once again start buying and leasing industrial properties after implementing a pullback in expansion over the past 18 months. The e-commerce giant has this year leased, bought or announced plans for more than 16M SF of new warehouse space in the U.S., The Wall Street Journal reported in May.

The number of buyers bidding on each property has increased significantly, which is pushing prices up across the industrial market, Kerr said. Industrial sales reached $15B during the first four months of the year, with the average property trading at $146 per SF, according to CommercialEdge. National in-place rents reached an average of $7.96 per SF in April, up 7.4% year-over-year.

“Acquisition groups want more deal flow to look at because they are competing against, in certain deals, 15-plus groups on one opportunity,” she said. “Because of that … these sellers are seeing really good pricing.”


The Federal Reserve has indicated the end of interest rate hikes has arrived, which means cap rates might be nearing their peak, respondents to a March CBRE survey concluded. That assumption fired up investors, who believe prices are as good as they are going to get for a while, Fraker said.

“They wanted cap rates to go higher and higher so they could get better deals,” Fraker said. “When the Fed signaled they were not going to increase the 10-year rate, all these investors out there finally realized it was time to buy.”

Meanwhile, the compression of debt-credit spreads, along with industrial’s strong underlying fundamentals, has greased the wheels enough for investors to feel comfortable trading again, said Agustín Barrios Gómez, founding partner of ICP Funds, an investment firm focused primarily on industrial.

“The one thing business doesn’t like is instability,” he said. “Even if you have a high bar because you have a high cost of capital, you can at least underwrite to that, as opposed to being in a situation where you don’t know where you’re going to be.” 

With big and regional banks still mostly on the sidelines, alternative sources of lending are filling the void. The CMBS market is firing on all cylinders, CRE Daily reported, with industrial lending increasing by 93% in Q1.

Industrial refinancing activity is driven by $156B in maturing loans. Sale prices are trending up, but many owners are still choosing to recapitalize in hopes they can secure even more favorable terms down the line, Kerr said.

“If you think next year we will be in a better environment both geopolitically and interest rate-wise, you’re seeing groups want to hold on to assets and wait for a better day,” she said.

Acquisition activity at ICP Funds has remained at a rate of about $150M per year, despite heightened borrowing costs, Barrios Gómez said. But closing deals today is more challenging than it was two years ago, when the firm secured about 1 in 10 deals. Now, that ratio looks more like 1 in 25. 

“Even though our rhythm of purchasing and closings has kept up, it’s been a harder slog for us,” he said. “It has meant more work to find those deals and to find the financing for those deals.”

Capital raising at ICP Funds has also kept a steady pace, Barrios Gómez said. In many cases, investors are willing to buy even if they have to sit in the red for a couple of years, knowing that it won’t be long before a property’s income will offset losses, Fraker said. 

“Every other asset class cannot really say they have this much rental rate growth going on. Ours can, and ours does,” he said. “Of all the asset classes, this is the one that has a lot of legs behind it because the fundamentals are so strong, and they keep getting stronger.”