Terreno Realty Corp has acquired a 135,000-square-foot industrial property in Santa Clara for $54.6 million. The property is fully leased to four tenants with leases rolling between 2022 and 2027. The purchased represents a 2.5% cap rate.
Located at 3660 Thomas Road in Santa Clara, the property features 13 dock-high and five grade-level loading positions and parking for 91 cars. Terreno purchases properties in high-quality coastal markets, with current holdings in Los Angeles, Northern New Jersey/New York City, San Francisco Bay Area, Seattle, Miami and Washington, D.C.
The purchase price on the property includes costs related to assuming debt, due diligence and closing costs as well as estimated near-term capital expenditures and leasing costs necessary to achieve stabilization.
The industrial sector has been red-hot since the pandemic catalyzed a new phase of growth in the ecommerce market. Last year nationally, industrial rents and leasing activity topped near record levels, and capital markets volume reaching record territory at $160.3 billion, according to research from Newmark. Absorption totaled 109.5 million square feet in the quarter, the third largest quarterly volume on record. Vacancy is at 4.2%, a record low, with all 49 industrial markets Newmark tracks posting single-digit vacancy in the fourth quarter. Los Angeles and the Inland Empire were tightest, at 1.1% and 0.8% respectively.
Additionally, asking rents grew by 2.9 to $8.82/square foot, a near-high, driven by a lack of available supply. Markets like Los Angeles, the Inland Empire, Northern New Jersey and Miami showing the most annual rent growth in 2021. Asking rents in the Inland Empire grew by 29%, the biggest increase in the US. Developers are working overtime to meet the demand. There is nearly 500 million square feet is under development, representing 3.2% of total inventory nationally.
In the Bay Area, new construction deliveries totaled 1 million square feet in the fourth quarter, an increase of 1.5%, according to research from Marcus & Millichap. As a result, rental rates are also up, climbing 5.4% to $26.98 per square foot. While the growth rate has fallen from 2017 and 2018, the rental rate has steadily grown over the last five years, even through 2020. The construction activity is meeting demand, with a vacancy rate that increased a nominal 70 basis points. Cap rates in the market have remained flat at an average of 5%, although much higher than Terreno’s deal, and asset pricing has increased to $500 per square foot.