Calkain Research has done a quick overview of the issues facingthe industrial market and industrial net leases specifically. Ouranalysis focuses on pertinent facts, conditions and trends to gleanwhere we are today and will be tomorrow.

|

MarketStatistics:

|

•CoStar Group reported 13 million SF of positive net absorptionin 2Q 2010. This is the first positive reading since mid-2008.

|

•The national vacancy rate decreased from 10.1% to 10% accordingto Costar, the first drop in over two years. Availability alsoslightly decreased from 14.8% to 14.7%.

|

•Real Capital Analytics reports that single tenant industrialcap rates had a weighted average of 8.5% in 1Q 2010. 85 basispoints higher than the same period last year.

|

MarketConditions:

|

•Occupancies have leveled off.

|

•Many current customers, due to their own economic uncertainty,choose to stay in their current space and negotiate more favorableterms.

|

•Cost to move is very high.

|

•Due to negative demand, development is down.

|

CurrentTrends:

|

•Companies have shifted to leasing space rather than owning,preferring to invest their capital in their core products/ productdevelopment (Coca Cola is prominent in this).

|

•Current Buildings that have been around for decades arebecoming functionally obsolescent to meet modern designspecifications.

|

•Because rental rates are so low, demand will have to driverents up, narrowing the gap between today’s cap rates so thatdevelopers can once again make a profit. Currently, developers aresitting on the sidelines until that happens.

|

PositiveIndicators:

|

•When demand does turn around, industrial has a shortconstruction cycle and can therefore respond quickly.

|

•Building obsolesces alone will account for a huge increase indemand over and above an economic recovery that would result inincrease supply and demand.

|

•Most industrial properties have NNN leases which means mostcost increases are passed onto tenants.

|

ExpertOpinions:

|

Gordon Whiting, founder and Senior PortfolioManager of Angelo, Gordon's net lease real estate strategy:

|

The strength of the industrial market today is still marketspecific and varies depending on the location and type ofindustrial asset. In general the bid and the ask spread hascompressed and sellers have much more realistic valuations. In thesingle tenant triple net lease market, particularly in the lessthan investment grade area, where we specialize, initial cap ratesare still double digit with annual rental increases. Thoseincreases are usually tied to the increase in CPI and most timeshave a minimum rental increase. I believe that now is a good timeto buy these assets and it is also a good time for sellers to sell.Mortgage financing has loosened up and that is a helpful marketdynamic.

Want to continue reading?
Become a Free ALM Digital Reader.

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.

Jonathan Hipp

Jonathan Hipp began his career in real estate over 25 years ago. In his early years as a broker, he ventured into the net lease industry and quickly began leading the US net lease market, closing over $3 billion in transactions. In 2005, Jon founded Calkain Companies, a company focused solely on net lease investment services. As President and CEO, he has been instrumental in building the firm into one of the leading Net Lease real estate companies, transacting over $12 billion of net lease deal volume over the past 13 years. He has expanded Calkain’s services to include brokerage, advisory, asset management, capital markets, and industry research. He has become a well-known resource, panelist, and speaker at various Net Lease and Industry conferences and is a regular contributor to GlobeSt.com on real estate trends. In June 2015, Jon’s passion for the real estate business was again recognized as he was nominated for the Top Real Estate Player in the DC area by SmartCEO magazine.