After more than a decade of tremendous growth and evolution, the industrial market has started to cool. Industrial demand fell 81% from its 2021 peak, leading to suppressed rent growth and an oversupply of new construction in mature markets. Yet, despite the sector's stasis buyers are still finding reasons to come to the bargaining table: for instance, the long-term outlook remains optimistic and alternative verticals are seeing a rise in demand.
While overall investors are practicing patience and making highly calculated moves, opportunistic buyers and owner-users are still actively pursuing investment opportunities, according to Jeff Rinkov, CEO of Lee & Associates. For those buyers, this is proving to be an ideal time to enter mature metros that typically have a high barrier to entry.
Owner-Users Strike in a Buyer's Market
The muted industrial investment has created a buyer's market for industrial owner-users. This buyer group typically competes with investment capital, but in the current market, the decrease in investment activity has created an opportunity.
"Without the competing bids and capital from investors, owner-users have really been successful in buying industrial facilities," explains Rinkov. "They have also actually provided an exit for some institutional landlords and developers that want to exit certain projects."
Some owner-users may be positively benefiting from tariffs that are helping to fuel domestic manufacturing. These buyers, in particular, are in a healthy position to take advantage of acquisition opportunities.
Opportunistic Investors Find Attractive Prices
Opportunistic buyers are also taking advantage of the slowdown and reduced competition. This pool of buyers is optimistic about the future of industrial and is looking to pick up a discount in mature, high-demand markets. "Reduced values have been more accommodating of investor activity," notes Rinkov. "Industrial investment in major markets is being driven by those opportunity buyers."
This is also true of developers—a group that Lee & Associates managing principal Brian Knowles calls the "real risk takers"—who are back and looking to ramp up spec projects in select major markets. "We're starting to see those folks look for opportunities to get back into the markets where everyone wants to be; near the population centers and logistics hubs," explains Knowles. These opportunistic, risk-tolerant investment groups are seizing on attractive pricing during what they see has been a temporary pause.
Major Metros Continue to Capture Attention
Both groups of buyers are actively looking for property in major cities and mature industrial markets that are seeing suppressed demand as a result of some oversupply. The Pacific Northwest, Florida, Texas, and Midwest cities like Chicago, Columbus and Indianapolis continue to attract investor attention. Even in mature markets like the Inland Empire in Southern California, investors are holding, not selling, despite some suppressed demand.
And, the future is looking bright. In the first quarter of the year, Lee & Associates brokers are seeing increased activity in these markets, a good sign for the remainder of the year. "There are new projects in the pipeline, and I expect those will continue to grow," says John Sharpe, a principal at Lee & Associates. "We have a balanced market that is moving steadily in the right direction."
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