Firm Remains Large Player in Sector, With Properties in Major Metropolitan Areas
Global private equity firm KKR has sold over 5 million square feet of industrial warehouse and distribution properties for more than $560 million at a time when the in-demand market is cooling.
The sales, made through five discrete transactions with five separate buyers, included over 50 industrial buildings located in “high-growth, infill markets” across Atlanta, Chicago, the Dallas-Fort Worth region and the Lehigh Valley and Central Pennsylvania, KKR said Monday in a statement.
KKR, which has bought over 60 million square feet of logistics properties since 2018 with a total combined value of about $8 billion, has sold about 21 million square feet since 2021, including the recent sales. The remaining 40 million square feet of industrial properties it owns are in major metropolitan areas, according to the New York-based investor, which manages over $64 billion in assets as of June 30.
A KKR spokesperson declined to specify to CoStar News the locations of the recent transactions and other details.
“We continue to selectively acquire logistics properties in growth markets and our existing portfolio continues to benefit from high occupancy and embedded rent growth potential,” Ben Brudney, a director at KKR overseeing U.S. industrial real estate investments, said in the statement.
The recent sales showcase “the attractive bid that exists” for high-quality properties in supply-constrained locations, Roger Morales, partner and head of real estate acquisitions in the Americas at KKR, said in the statement. Industrial real estate is the “largest exposure” for KKR across its U.S. opportunistic and core plus real estate strategies, Morales said.
KKR’s sales come as the U.S. industrial market is showing signs of a slowdown. While the national industrial vacancy rate is expected to remain below its 20-year average of 7.3%, the market could face one of its more challenging periods in the next 12 months, according to a CoStar analysis.
Even though second-quarter absorption, or the net change in occupancy, has remained positive, the level was 30% below second-quarter levels averaged during the three years prior to the pandemic, the CoStar analysis found.
“After continuously rebuilding inventories from the fall of 2021 through the fall of 2022, retailers and wholesalers are pausing further inventory accumulation out of caution over the economic outlook causing U.S. imports to decline from record highs,” according to the report. “Meanwhile, a swift recovery appears unlikely given the near-term potential for a mild, interest rate-driven recession.”
New supply is also all but certain to push the national vacancy rate up during late 2023 and early 2024, the report said, adding there is 529 million square feet of projects under construction across the 87 markets that make up CoStar’s national index.
Against that backdrop, industrial investment deal activity still “stands out” among the other major property types, the report said. Even though transaction volume fell 50% from the highs in late 2021, the volume throughout the first half of this year has outpaced the pre-COVID five-year average by 12%, according to CoStar.
In another example of interest in the sector, even as sales have slowed, EQT Exeter, a big industrial real estate investor, recently paid more than $225 million for a portfolio of warehouses near Chicago, Cincinnati and Memphis, Tennessee.