CHICAGO—The US industrial sector has entered a golden age, but its strengths should not be considered in isolation from other property types, especially when it concerns its ability to attract new investment. Industrial properties have steadily become more popular with investors, and that growing appeal is occurring as some clouds have appeared over other real estate investment options.
“It’s obvious that the industrial sector has a lot of positive momentum,” Erik Foster, a Chicago-based principal of Avison Young’s capital markets group, tells GlobeSt.com. But the factors that have driven that success, especially the rise of e-commerce and subsequent demand for new distribution facilities, has helped undermine the brick-and-mortar retail sector. And investors are now understandably reluctant to put their money into many retail spaces.
Furthermore, Foster adds, the office sector has changed in fundamental ways that may limit investment options. For one thing, the hot office trend is to ditch individual offices, design more cooperative spaces, and shrink the square footage dedicated to each employee. “Everyone is doing more with less.”
And even though the trend toward urbanization has revived and strengthened many CBDs, it has also pushed a lot of suburban office parks off the radar screens of potential buyers. In addition, the growing density of urban core areas has further boosted the need for distribution centers that can serve this population.
The multifamily sector, the last of the four major groups, has like industrial been remarkably healthy for years, and eager investors have responded by driving up prices. However, “it’s a bit stagnant compared to where it was one year ago,” says Foster. As a result, industrial “is the preferred investment vehicle of the four major groups.”
And many principals and brokers expect this preference will stay in place for an extended time. Real Capital Markets and the Society of Industrial and Office Realtors just published a survey of their members, and 51.8% of brokers felt activity would increase over the next 12 to 18 months. Another 39% felt activity would remain at its present high level.
“Pricing is expected to increase over the next 12 to 18 months,” the Industrial Sentiment Report notes. “Many survey respondents predicted at least a 5% growth rate and possibly twice that level.”
And all types of buyers, including institutional investors, REITs, private investors and many foreign investors, are ready to take part. Jack Fraker, of CBRE in Dallas, noted in the report “that many large deals are attracting more than 100 potential buyers.”