Commercial Investment Real Estate September/October 2013 - Page 34

STRONG MARKET LOCATIONS Memphis, Tenn., Cincinnati, Indianapolis, and Louisville, Ky., — what is referred to as the “Virtual Main Street” — have benefi ted from e-commerce operations selecting these markets for their central U.S. locations and for access to outbound shippers. Strong absorption in 2010 and 2011 led to the absorption in modern super bulk buildings (600,000 sf and up), making these central markets prime locations for development. IDI has started 4.1 million sf in these markets pri- marily in super-bulk buildings and has leased almost all of them with strong activity in the remaining spaces. Plans for additional construc- tion are expected in these markets. The growth in the natural gas industry is also benefi ting Houston’s industrial market. In terms of total supply of modern logistics space delivered in 2010, it was second only to the Inland Empire in total square footage at 6.4 million sf, but higher in building count because the facilities were smaller, light industrial buildings averaging less than 150,000 sf. Despite this, the total market vacancy is 5 percent — sig- nifi cantly below the U.S. average of 8.7 percent, according to CoStar. Also occurring is the re-emergence of small to midsize tenants from many dif erent industries including manu- facturing and construction. T ese f rms need expansion space, while new businesses are also being formed with a need for light industrial space. As these small to midsize tenants continue to rebound, leasing activity between 25,000 sf and 100,000 sf has followed. Investment Considerations T ere is continued strong investor demand for new investment in modern logistics real estate. Renewed opportunities for the full spectrum of real estate invest- ment capital, including real estate investment trusts, institutional investors, sovereign investors, and pri- vate equity, make it a great time to be a seller of class A properties. It’s still a challenge though to quickly achieve asset allocations in the industrial market. For example, an institutional investor with $1 billion to invest and a 20 percent allocation for industrial real estate will likely infrastructure: air freight, intermodal rail, and seaport. Class B and have to complete 10 to 20 $10 million to $20 million transactions. class C buildings cannot of er these prerequisites and therefore are T e investor can achieve the same 20 percent allocation in the of ce market by buying just one building. As more capital continues to f ow in much lower demand despite closer proximity to the city center. Tenants are also looking broadly at a marketplace. Certain mar- into real estate, expect the industrial investment market to continue kets, such as Memphis, Tenn., Cincinnati, Indianapolis, and Louis- to pick up in core, value-add, and development. ville, Ky., have the existing logistics infrastructure needed for ef cient As the top markets have strengthened, construction has returned. distribution centers, including proximity to multi-modal transit — At the end of 1Q13, about 60 million sf of modern logistics property rail, highway, and air freight. T is allows tenants to serve a larger was under construction nationally, a steady increase from 20 million percent of their customer base using the most ef cient combination of sf at the end of 2011. Prerecession, the average modern logistics square trucks, planes, and trains without being locked into the old paradigm footage under-construction was about 100 million sf. of distribution via truck only with a two-day service window. T ese While the future of the industrial market looks positive, there markets are also competing directly with each other. are still reasons to be cautious. We cannot overlook how the reces- sion changed the industry. Demand is up and access to capital has improved, but developers, tenants, and U.S. Total Industrial Supply and Demand investors are being more prudent, which is probably 12.0% 300 a good thing. Part of this 250 10.0% cautious optimism is due 200 to the surge of information 150 and data that is now available 8.0% 100 to help tenants and inves- 6.0% tors make better-informed 50 decisions. 0 4.0% (50) Bryan Blasingame is senior (100) 2.0% vice president and chief (150) investment offi cer for Industrial 0.0% (200) Developments International 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1H2013 headquartered in Atlanta. Industrial Stats Source: CoStar 32 Completions (L) September | October | 2013 Net Absorption (L) Vacancy (R) Contact him at bblasingame Commercial Investment Real Estate