INVESTED IN INDUSTRIAL
Previous spread , photo by Samuel de Roman ; this page , Ollo e-commerce growth . Besides e-commerce , future demand is expected to be broadbased from a diverse range of sectors like health care and life sciences .”
Strong demand for space and higher construction costs are pushing rents higher . At midyear , industrial rents were growing at a rate of 5.1 percent year over year , according to JLL . In its second quarter U . S . industrial report , the firm predicted that rents would grow in 2021 and 2022 at an annual rate between 4 to 7 percent .
“ Investors are definitely bullish on occupancy and rent growth ,” says Marshall . In Chicago , the dwindling supply of space is driving speculative development . Development projects are being impacted by higher land prices in some areas , as well as a roughly 20 percent increase in construction pricing with costs that ultimately will be passed through to tenants , he says . “ So , you have all of these forces that will support continued rent growth for the next six to 12 months ,” he adds .
WHERE IS CAPITAL FLOWING ? Investment capital remains keenly focused on major logistics hubs serving ports , rail , and air . A quarter of all industrial transactions during the first half of the year were concentrated in five markets . Los Angeles was the most active for industrial sales with $ 3.2 billion in sales , followed by California ’ s Inland Empire , Chicago , Houston , and Atlanta rounding out the top five , according to Real Capital Analytics . Investors also are expanding in metros that are experiencing population and job growth . For example , Dallas-Fort Worth has been red hot for both leasing and investment sales , notes Dunn . “ Pretty much any building that goes on the market sells very fast ,” he says .
1031 like-kind exchange investors from the coasts are coming to the Dallas market in hopes of finding more attractive yields . Dunn recently closed on the sale of a 20,000-sf property with a 1031 buyer from California . The property sold for a 7.5 percent cap rate , but the tenant only had 2.5 years left on the lease . If the property would have had five years left on the lease , it likely would have traded at a 7 percent or 6.5 percent cap . That deal speaks to investors ’ willingness to take on leasing risk to close deals , adds Dunn .
Investors also appear willing to expand their investment criteria to place capital . For example , some are willing to look at properties built in the 1960s or 1970s with 16- or 18-foot clear heights . However , buyers remain interested in the “ story ” that a building has to offer as another factor in why it ’ s compelling , adds Dunn .
Investor strategies run the gamut from stable A properties to value-add repositioning . Some buyers are looking for bigger portfolio deals . At the same time , other investors who want to assemble portfolios
The Gap Between Deliveries and Net Absorption
Figures in msf
110 100 90 80 70 60 50 40 30 20 10 0
1Q2018 2Q2018
Source : JLL Research
3Q2018 4Q2018
Net Absorption
1Q2019 2Q2019
3Q2019 one building at a time are willing to buy an asset with some leasing risk at , say , a 7 percent cap , lease it up , and then turn around and sell the portfolio they have accumulated at a 6 percent cap , notes Dunn . “ There are three or four of those buyers in the Dallas-Fort Worth market right now , and two who have been very aggressively trying to find buildings ,” he says .
Warehouse / distribution , e-commerce fulfilment , and logistics facilities tend to dominate the conversation in industrial . However , investors are active across the spectrum of different types of industrial assets .
“ Infill Class A attracts the most buyers , but if you have any industrial assets , there is a lot of demand right now ,” says Marshall . There also continues to be good sales activity in the flex market — those industrial assets with a higher percentage of office finish . According to RCA , the $ 10.3 billion in flex property sales that occurred in the first half of the year represent a 27 percent increase in year-overyear transactions .
In addition , the pandemic has spurred more interest in life sciences and health care-related properties . “ The pandemic has created a tremendous amount of research activity that is creating demand for life sciences
Deliveries
Gap decreasing March 2020 COVID-19-related restrictions put a pause on construction projects and tenant move-ins .
4Q2019 1Q2020
2Q2020
Gap increasing February 2021 Robust leasing in 2020 contributed to accelerated occupancy of logistics space with supply struggling to match pace
3Q2020 4Q2020
1Q2021
2Q2021 assets ,” says Sid Bhatt , CCIM , senior associate with the Patel Yozwiak Group at Marcus & Millichap in Tampa , Fla ., who works on industrial property sales in the Southeast . There are life sciences hubs popping up around the country , such as Boston , San Diego , Philadelphia , and Raleigh-Durham , N . C . At the same time , a variety of startups doing R & D are looking for space in a variety of markets . This creates opportunity for investors to convert industrial , flex , or even office space to lab and R & D space that can support demand from these life sciences tenants , he adds .
CIREMAGAZINE . COM COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE 27