Industrial Has Room to Run with Rents and Lending Support
CBRE’s analysis found rent spreads of 26% in Houston and Dallas/Fort Worth, confirming the current market for industrial and logistics real estate has growth remaining.
HOUSTON—Projected rents are more than adequate in many markets to justify additional development of warehouses and distribution centers, according to a new report from CBRE. The firm analyzed the gap between pro forma rents in various markets–the rental rates that developers can reasonably expect to obtain on newly built warehouses–and break-even rents, i.e., those needed to cover overall development costs. In the 10 major markets that CBRE examined, the former exceeded the latter by 20 to 40%.
“This huge gap implies that if demand slows and the market cools a bit, there’s still a lot of cushion there,” said David Egan, CBRE global head of industrial and logistics research. “This means that the development market is quite healthy, underwriting remains conservative, projects under development should perform quite well and the incentive is there for continued development.”
These spreads also confirm that the current market for industrial and logistics real estate has growth remaining. Typically, a sign of waning momentum for a market comes when spreads between pro forma and breakeven rents narrow or vanish.
CBRE’s analysis found rent spreads of 26% in Houston and Dallas/Fort Worth.
“These findings, much like other recent CBRE research reports, underscore that the industrial and logistics real estate market is undergoing a structural change due to demand tied to e-commerce,” said Adam Mullen, CBRE Americas leader for industrial and logistics. “Many baselines in this industry are being redefined because of this fundamental change in the way we purchase and receive many goods. Anticipating this market’s trajectory requires vigilant monitoring and analysis of indicators such as these rent spreads.”
Indeed, industrial is a product type that is part of many lender/investor profiles for this reason, especially in Texas. Leslie Smith, managing director of Commercial Direct, confirmed this fact when discussing lending requirements.
“Texas has always been a state we like, in fact, it is one of the top three states for originating loans,” Smith tells GlobeSt.com. “Industrial owners there are seeking cash for capital improvements in warehouses and other logistics facilities.”
This speaks to the heightened demand for industrial product in Houston and throughout Texas, she says.
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