MARKET INTEL: Rising “IRE”: Two CRE Industrial Trends to Watch During Rising Inflation, Rates and Employment Cuts

**This research piece is created with CompStak’s exclusive data

As a follow-up to KC Conway’s blog, CRE Headwinds – Rising “IRE”: Inflation, Interest Rates, and Employment Cuts, this week CompStak is presenting four CRE trends to watch during this period of rising “IRE” based on CompStak’s best in class industrial and office lease transaction data. This week we are covering two trends in the industrial space—stay tuned next week for two trends to watch in the office market. 

Interested in hearing more on these topics? Please join us on September 15 for a webinar featuring Michael Mandel, CEO of CompStak and KC Conway, Principal/Co-Founder, Red Shoe Economics.

Are Lease Escalations Increasing in Industrial Deals During This Period of Rising Inflation?

The industrial real estate market has accelerated dramatically through the pandemic, as an increase in e-commerce and supply chain pressures pushed demand for space and rents to new heights. To date, industrial rents have shown few signs of deceleration as a result of economic factors. In fact, many markets have experienced industrial base rent growth year over year, outpacing inflation.

CompStak’s lease transaction data shows that annual escalations built into industrial leases are on the upswing. CompStak evaluated annual escalations for industrial transactions in select major markets including Los Angeles – Inland Empire, Atlanta, Northern and Central NJ, Chicago metro, Philadelphia, Central PA, Southern NJ, Delaware, and Dallas-Fort Worth and found:

• The share of industrial transactions with annual escalations above 3 percent has increased steadily since the beginning of 2021.
• In 2017 to 2021, the median annual escalation was 3%, but in 2022 to date, it has increased to 4%.
• At the same time, the 12-month percentage change in CPI, has been on a steep climb upwards since the beginning of 2021—it has been above 4% for the last 16 months.