NEW YORK CITY—“With over $14.5 billion in industrial CMBS loans set to mature between now and 2017, is the industrial market's current demand strong enough to handle a wave of refinancings?” That's a question posed by Trepp LLC, and the analytics firm's new report on the sector gives it a pretty strong affirmative response. Corroborating the positive assessment is the latest three-year forecast from the Urban Land Institute, which rates industrial's long-term performance highly by comparison to other sectors.

The obvious driver for the sector's current good health is e-commerce, yet Trepp's report makes it clear that there's more than one driver. “In addition to retail, spillover effects from expansion in other sectors, such as automobile and housing construction, will lead to further increased industrial demand,” according to Trepp.

Citing data from Colliers International, Trepp notes that the greater demand for industrial space is reflected by “higher projected rent rates, growing foreign investment in US industrial properties, rising industrial property construction and increasingly stable absorption and occupancy rates.”

Following several quarters of positive industrial real estate fundamentals and an optimistic outlook, “many experts believe future growth will climb back to pre-recession levels,” states Trepp's report. It notes that vacancy rates have declined for 22 consecutive quarters. “The primary stimulant of this boom is a rebound in the general state of the economy, as higher GDP, employment, and income levels all spur consumer spending and manufacturing-related demand.”

Longer-term, the consensus view of 48 real estate economists and analysts surveyed by ULI is that industrial availability rates—already below the 20-year average of 10.4%—will continue to decline through 2017, while rents will continue moving in the opposite direction. “Forecasts are for healthy rental rate growth to continue, with increases of 4.9% in 2015, 4.0% in 2016, and 3.0% in 2017,” according to ULI's Consensus Forecast Fall 2015. “These forecasts are all above the 20-year average growth rate.” As with availability projections, the consensus on rents adds hundreds of basis points to the projections made six months ago on rental rate improvement.

And while the experts surveyed by ULI expect total returns on institutional-quality direct real estate investments to decline over the next three years, industrial will fare best. It's expected to post the strongest NCREIF returns this year at 13% and hold up better than other sectors in '17, albeit with a lower return of 8.4%.

Looking at CMBS, Trepp notes that of the major property types, industrial loans make up the smallest portion of maturing volume over the next several years. The percentage of maturing legacy CMBS loans backed by industrial properties will average between 2% to 5% over the next five years, and is set to peak at 5.49% in '17.

“Representing 3.8% of this year's remaining maturing volume, approximately $1.3 billion worth of industrial loans are yet to mature in 2015,” according to Trepp. “This number, however, will rise dramatically over the next two years, as the brunt of the maturing wall comes due,” leading to an expected $13.2 billion worth of maturities during that time.

Amid “the specter of rising interest rates, recent market volatility and new regulations affecting CMBS issuers and portfolio lenders,” the increased volume of maturing loans may spike maturity defaults and modifications, Trepp says. “However, the average occupancy rate is 95% or higher for industrial loans maturing between 2016 and 2020. In addition, less than 5% of those maturing loans have occupancy below 50%. Strong tenancy should mitigate the risk of default for industrial loans.”

The drivers of that strong tenancy will be among the topics at next month's RealShare Industrial conference, scheduled for Nov. 3 and 4 at the Ritz-Carlton in Atlanta. Click here for additional information and to register for the conference.