What Else Besides E-Commerce Is Driving This Industrial Bus?
Investcorp evaluated many factors besides just e-commerce flows with the 4.5-million-square foot portfolio it just acquired for $300 million.
NEW YORK–When Investcorp was evaluating the properties in the 4.5-million-square foot industrial portfolio that it would eventually buy for $300 million, the company looked at all the drivers that made the portfolio tick. “E-commerce, although very significant, is only just a piece of it,” Herb Myers, a managing director in Investcorp’s Real Estate Investment team, tells GlobeSt.com. There was the ‘last mile’ factor and the strong locations of the properties, which are in cities that either have their own good growth story to tell or are strong distribution centers. The fact that the portfolio was not exposed to much new supply.
But underlying it all was the strong demand generated by e-commerce. “We choose these assets in part because of the life that e-commerce is bringing to the overall industrial market,” Myers says. E-commerce activities are going far to absorb space, thus creating a tighter environment for the industrial users, he says. “Because of the amount of space e-commerce is absorbing, it is benefiting landlords overall.”
A Look at the 100 Largest Industrial Leases
With e-commerce such a steamroller for the industrial asset class, it is easy to forget that there are other drivers behind industrial leases and acquisitions. A new CBRE analysis found that of the 100 large US industrial leases signed in the first half of the year, manufacturers signed 14 of those leases, food and beverage providers signed 11, retailers signed seven, four were signed by technology companies and eight fell in the “other” catch-all category. “While e-commerce is driving many new leases, there still is a solid diversity of users throughout the top 100 leases, says Adam Mullen, CBRE Americas Leader of Industrial & Logistics. “That’s good for the warehouse and distribution industry overall.”
Strong Fundamentals, High Valuations
The downside to these strong fundamentals is that property valuations are high, as Myers acknowledges. However, he adds, there is still room for valuations to rise even further because this e-commerce/industrial cycle is still in its early days. “We see good strength in valuations going forward despite the fact that there has already been a big increase in them,” he says.