wants to be in industrial.
MIAMI-From financing to development—and everything in between—the sentiment among industrial players can be described in a single word: bullish. Brokers, developers, and lenders all used the term repeatedly in discussions about the short-and long-term prospects for industrial real estate during RealShare Industrial in Miami, Fla. on Thursday.
“The market is very bright right now,” said Ward Fitzgerald, managing principal and CEO of Exeter Property Group, who offered the keynote. “The institutional market is bullish on industrial. You should be bullish.”
Fitzgerald explained why: the fundamentals in the industrial market simply don’t exist in other real estate sectors. The office and hotel market are driven by jobs. The retail market is driven by Gross Domestic Product. Industrial is less dependent on those metrics and more impacted by population growth.
Fitzgerald also cited globalization, which spurs the movement of goods, as a boon for the industrial sector. Then there’s obsolescence. Unlike office buildings or multifamily projects that continue running strong even 100 year after they are developed, industrial properties have a shorter lifecycle and have to be redeveloped in as little as 30 years.
“Multifamily has been leading the market in returns,” Fitzgerald said. “But the industrial market is projected to have the highest returns over the next five years. Industrial is the most prominent product type among investors. Currently, some pension fund owners don’t own any industrial. Now, that is starting to change.”
The keynote was followed by the Town Hall Power Panel. Jim Dieter, an executive vice president at Cushman & Wakefield, moderated the panel with a lively tone that challenged the commercial real estate professionals to get to the bottom line. After a few minutes of what he called “happy talk,” Dieter asked the panelists to express their concerns about the industrial market.
PJ Charlton, senior vice president at KTR Capital Partners, said he still sees tenants taking their time to make decisions on new industrial space. He is pondering questions such as: “How quickly will money flow into development?” and “How quickly will markets get overbuilt?” Charlton said, “There is five times the pressure for money to get placed into industrial deals as there is demand from tenants looking for industrial space.”
Brandy Birtcher, president at Goodman Birtcher North America, has specific concerns about industrial in California. “We’re going to see resistance to building big box industrial because it doesn’t create that many jobs,” he said. “But we needs these big box industrial buildings.”
Peter Shultz, executive vice president at First Industrial Realty Trust, is concerned about the wave of CMBS loans coming due in 2014 and the likelihood that the cost of capital will increase in the face of Basel III and the Dodd-Frank Wall Street Reform and Consumer Protection Act.
“Where is the capital going to come from?” Shultz asked. “You better have cash on hand because you are going to need it for development projects.”
Still, Jay Cornforth, president of the East Region of Prologis, is bullish. “I see a long-term trend,” he said. “Currently, the real estate allocation is about 10%. By 2020 I expect the real estate allocation to reach 20%.”