Industrial Real Estate Hits its Stride
After record years in 2016 and 2017, the industrial sector is poised for an even stronger 2018, reported Yardi Matrix, Santa Barbara, Calif.
“Warehouse and distribution assets posted double-digit total returns, record low vacancy rates and all-time high rents in 2017 and are on track for an even stronger year in 2018,” the Yardi Matrix Hitting Its Stride industrial sector report said.
Jim Connor, Chairman and CEO of Duke Realty, Indianapolis, a real estate investment trust that owns 149 million rentable square feet of industrial assets in 20 markets, noted the sector’s supply remains in check and demand is robust. “Investor demand for industrial product is still very strong,” he said. “The industrial sector has consistently been one of the top-performing sectors over the last five years. As the sector continues to perform well, more investors are allocating dollars toward industrial real estate, yet most are underweight in industrial because they can’t find enough product to buy.”
Connor noted the sector’s financing remains very controlled. “That is one of the factors that has kept the sector from becoming overbuilt,” he said. “Both construction lending and permanent financing remain at conservative levels compared to previous cycles.”
E-commerce sales grew more than 16 percent between first-quarter 2017 and first-quarter 2018 and will remain a driving force in industrial real estate for the foreseeable future, said Colliers International, Toronto. The firm’s Industrial Market Outlook report said the national industrial vacancy rate remained at a record low 5.1 percent for the second consecutive quarter despite nearly 53 million square feet of new supply delivering in the first quarter.
“Essential indicators for industrial real estate, including loaded inbound container volumes and intermodal rail volume, continue to move in a positive direction,” Colliers said. “U.S. seaports are booming, with nearly all major locations posting year-over-year increases in loaded inbound container volumes. Rail traffic also remains robust as year-to-date volumes are up more than 2 percent compared with the previous year.”
Demand for industrial properties surpasses all other property types, Colliers said. Nearly $21 billion in industrial assets were purchased in the first quarter, 11 percent higher than a year ago, while overall commercial real estate transaction fell. Portfolio sales increased nearly 85 percent due to two large transactions while individual sales grew by 11 percent compared with the previous year.
The southern U.S. remained the region of choice for occupier expansion, Colliers said. Nearly half of all net absorption in the U.S. occurred in the region despite it having only 31 percent of existing warehouse stock, and three of the top five markets for net absorption in the country were in the south.
