Ten-X: Industrial Sector Benefitting From Retail’s Woes

Industrial real estate continued its healthy expansion largely due to continued e-commerce growth, reported Ten-X, Irvine, Calif.

“The industrial sector is benefitting from the same shifts that are afflicting its retail counterpart, “said Ten-X Chief Economist Peter Muoio. “As more and more people choose to stay home to do their shopping, companies need more space to house and distribute the products they sell online.” 

Muoio said this change in consumer behavior “appears built to last and puts industrial owners in a favorable position for the years to come.”

Real Capital Analytics, New York, reported that overall industrial deal volume fell 26 percent year-over-year to $12.5 billion during the second quarter. But vacancies fell into the mid-8 percent range and increased nearly 2 percent year-over-year.

Some markets–especially those that rely heavily on energy production–are struggling amid the lasting slump in oil prices, Muoio said. Ten-X ranked four Texas cities: Houston, Dallas, Fort Worth and San Antonio, among the metro areas where industrial investors might want to consider selling their properties. Washington, D.C.’s Maryland suburbs also made the ‘Sell’ list. 

Ten-X called Nashville, Tenn., Los Angeles, Memphis, Tenn., Atlanta, Ga. and San Bernardino-Riverside, Calif. markets where real estate investors should consider buying industrial assets.

“While overall economic conditions in these areas differ, each finds itself in a unique position to capitalize on the mounting demand in the sector,” Ten-X said, citing strong absorption rates that promise to outpace supply over the next two years.

Several factor indicate that the sector should continue to blossom, Ten-X said. It predicts that rents should increase by 3 percent over the next two years. Vacancies could fall into the mid-7 percent range in 2018, which would be their lowest point since 1990.

“Investors should remain cautious, however, as the sector will remain vulnerable to a cyclical downturn on the horizon,” Ten-X said. It noted that vacancies could rise to 9 percent by 2020 and said rents could start to decline 1 percent per year beginning in 2019.