Boosted by e-commerce and steady economic growth, investors are shaking off their doubts over the staying power of the country’s industrial development boom.
Nearly half of investors surveyed in Real Capital Markets’ Annual Industrial Investor Sentiment Report said they believe investment activity will remain steady headed into next year, and another 43 percent said they expect investment to accelerate. That’s a direct flip from last year’s survey, when 48 percent of respondents predicted an increase in investment and 43 percent said it would stay the same.
Two-thirds of investors also said they expect prices to rise on industrial properties, about the same as last year. But 38 percent of respondents said they’re bracing for price increases of 5 percent or more, up from 34 percent of those surveyed in 2017.
Developers attribute their growing appetite for warehouse and manufacturing projects to the multiplying demands of a growing e-commerce industry, and about a third of investors surveyed identified Internet sales as the No. 1 factor driving investment. But another 38 percent cited a more fundamental force — the “general strength of the economy” — as the main fuel for their optimism.
If the country keeps racking up GDP growth anywhere near the 4.2 percent annual rate registered during the second quarter this year, industrial investors have no reason to turn off the spigot, according to Jim Martell, CEO of Chicago-based warehouse developer Logistics Property Co.
“E-commerce has been a very positive disruptor for us, ever since it started up about 10 years ago,” Martell said. “But we’re also seeing our population and GDP grow, and demand for warehousing is highly correlated with the growth of GDP.”
But the survey also flagged a handful of potential hazards that should worry anyone with a stake in industrial real estate. About 28 percent of investors said tariffs on foreign products represent the most immediate threat, and others said they’re factoring the prospect of higher interest rates into their investment decisions.
The report also noted a “shortage in quality assets” when it comes to acquiring property for industrial construction, pushing developers to widen their search for promising land. The country’s feverish pace of spec warehouse construction has raised eyebrows among some industry pros, including Equity International chairman Sam Zell, who earlier this year predicted a “market clearing”for industrial landlords.
“Bullish industrial investment also means builders will likely have enough cushion to withstand a glut of vacant space if it emerges,” Martell said. “There are probably some markets getting a little over their skis, but if there’s a correction that just means a pause until we see some more absorption. And even if supply and demand end up getting a little out of sync, that provides an opportunity for a more rent-sensitive user to move up into class-A buildings that may be vacant.”
A CBRE report last month highlighted the Chicago area and the Inland Empire area around Los Angeles among the most active markets for industrial and logistics leases. Southern California tallied 11.6 million square feet of deals signed, followed by Atlanta at 7 million square feet, Chicago at 6.8 million square feet, Pennsylvania’s Interstate 78/I-81 corridor at 6.8 million square feet and Dallas-Fort Worth at 5.2 million square feet.
Source: The Real Deal
Larry W. Genet is a Senior Vice President in the CBRE, Inc. Miami, FL office. As part of the CBRE platform Mr. Genet can provide a wide range of services from local to Fortune 1000 clients including agency and tenant representation, asset or portfolio management, high level logistics, labor and data analytics prior to site selection, project/construction management, capital markets, owner user sales and valuation advisory services. CBRE is the global leader for real estate services worldwide.
Larry has extensive experience in landlord agency, tenant representation, acquisitions, dispositions and property management. As a third-generation commercial real estate professional and South Florida native, Larry boasts deep community ties, an intimate knowledge of the South Florida market and numerous professional contacts. Larry’s leasing expertise of industrial, office, land, retail and medical properties coupled with his experience in acquisitions and dispositions gives him the ability to represent a myriad of clients in the South Florida market. Additionally, Larry controls a portfolio of 13.5 million square feet allowing him to see every deal in the market. This ensures his clients never miss an opportunity. His knowledge of tenants and buyers in the market is top notch and when coupled with his team's vast portfolio, it's a winning combination.
