Foreign Investment in US Industrials Hits High

CHICAGO—Foreign investment in American industrial assets has jumped again in the past year, eclipsing the amount invested in 2007, and Canadians led the way, according to a new report by Avison Young's industrial capital markets group. Foreign investment in industrial property from January until mid-November totaled $2.64 billion, compared to $2.33 billion in 2007. Canadian investment totaled $1.4 billion for 101 properties and South Korean investors came in second, paying $514 million for 23 properties.

“The total volume of investment activity in the industrial sector has increased during each of the past three years, up from $2.13 billion in 2012 and $1.16 billion in 2011, according to Real Capital Analytics statistics analyzed in mid-November,” according to the report. And “the most active investors are from Canada, where each year from 2011 to November 2013 the total amount disbursed was greater than the dollar volume from all other countries combined.”

“I think there are a lot of substantial reasons Canadians invest in the US,” says Avison Young's Erik Foster, the report's Chicago-based author. “It's close by, and from a governmental standpoint, the countries are very similar.” And many corporations, such as General Motors, other auto manufacturers, and financial institutions, have cross-border operations, giving investors on both sides a great deal of comfort in their neighbor.

Furthermore, Foster adds, even though the US, its largest trading partner, started falling apart economically in 2008, “Canada did not go into recession.” Due to stricter lending requirements, “people did not get over leveraged on their homes.” Therefore, even though the US has begun a recovery, by comparison Canadians are still flush with more capital and need places to invest it. “Real estate in the US can look like a bargain [for Canadians] compared to their domestic prices.”

“The industrial sector is gaining favor among institutional investors because it offers steady cash flow, low capital/tenant improvement expenditures, and lower volatility than many other asset classes,” especially the burgeoning warehouse/distribution market, the report also notes.

This year, for example, in a deal worth $1.1 billion, Canada-based Brookfield Property Partners, one of the world's largest asset managers, acquired Industrial Developments International Inc. of Atlanta and its 75 distribution centers with 27-million-square-feet across multiple markets. In another representative transaction, the Canada-based WPT Industrial REIT recently paid $53 million for 1.26-million-square-feet of warehouse/distribution space at the Gateway Commerce Center in Edwardsville, IL, just east of St. Louis.

In 2014, Foster expects this cross-border investment “is only going to increase and there will be continued attraction to the industrial asset class across many markets.”

“Top-tier cities, such as Los Angeles, Atlanta and Chicago, will continue to draw investor attention because of their prime locations and superior access to national and regional distribution networks. At the same time, a lack of inventory and limited new construction will continue to push sales prices upward, forcing some investors into secondary markets.”