Warehouses are getting smarter, and distribution channels aregetting more efficient. As consumers demand faster delivery ofgoods, the industrial sector will play a huge role in making thathappen and technology will be the driver. That is according toJimmy Ullrich, director of Stan Johnson Co., who recently chattedwith GlobeSt.com on demand for industrial product and what hefuture looks like for the sector.

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GlobeSt.com: What's driving demand for industrialproduct in today's market?

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Jimmy Ullrich: Industrial is reallythe belle of the ball these days, and demand is coming from threedirections. First, the reconfiguration of retail's supply chain isdriving demand for both warehouse and distribution space. Secondly,institutional capital has fallen in love with the asset class –they're coming into the space in droves, driving down yields. Inever thought I'd hear “Greenville-Spartanburg” as a buzz word onthe streets of New York City, but quality product in markets of allsizes can be really attractive in today's market. Lastly, myfavorite driver of demand is coming from private buyers. 1031exchange buyers who have spent decades buying low cap rate retailproperties are growing weary of negative headlines. The doom andgloom – whether real or perceived – surrounding portions of theretail sector is causing some private buyers to migrate toindustrial, which can offer better yields.

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GlobeSt.com: Is demand the same across all marketsand geographies?

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Ullrich: Not exactly. The Southeast isin favor right now due to high population growth, job growth, andmanufacturer relocations. Markets like Charlotte, Raleigh-Durham,and the aforementioned Greenville-Spartanburg all continue to growand attract both private and institutional capital. And Florida hasalways been great because of its zero percent personal income tax.The Pacific Northwest is also very popular with investors,particularly Washington with no state income tax. Yields here arevery tight. And while the Midwest may not present the populationgrowth story, this region can offer higher yields for investorstoo.

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GlobeSt.com: What concerns do buyers have aboutchanging market conditions, and what advice are you givingthem?

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Ullrich: There are two main categoriesof concern I'm hearing from clients today – challenges related tosupply quality and interest rate movement. First, it's tough tofind good deals in a market that is saturated with average supply.There are too many buyers chasing too few high-quality deals. Andwhen a quality deal hits the market, savvy investors will snap itup immediately. Some deals are even trading off-market in today'senvironment. We saw similar trends back in 2005, although leveragelevels are lower today, but regarding price, there is downwardpressure caused by the abundance of capital, and pricing can easilyget distorted. There remains a disconnect in buyer-sellerexpectation, and until that gap gets smaller, it's tough for aprudent investor to wade through these waters. If you dig deep intothe inventory though, there are certainly great deals to be made.As far as interest rates go, I thought we would have seen increasedinterest rates and corresponding increased cap rates in firstquarter. Instead, interest rates pulled back and provided some latelife to this real estate cycle. I've therefore been advising buyersto match their debt and lease maturities to defend against risinginterest rates that will come eventually.

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GlobeSt.com: Which industry trends do you think willhave the biggest impact on industrial investment sales in the next12-24 months?

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Ullrich: If interest rates remain low,and rent and occupancy fundamentals remain strong, then we shouldsee flat or increased sales volumes with stable cap rates. Ifeither changes, we may be in for a correction. Another trend tofollow is technology. Tech is changing the way we do business, andI am always looking for new ways to leverage tools that will helpme serve my clients better. But the same trend is impacting theindustrial sector at the property level too. Warehouses are gettingsmarter, and distribution channels are getting more efficient. Asconsumers demand faster delivery of goods, the industrial sectorwill play a huge role in making that happen and technology will bethe driver.

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Natalie Dolce

Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.