4 Signs That Industrial Real Estate is Booming
August 18, 2016
It’s a commonly held opinion that the only attractive aspect of industrial real estate is cash flow. And while it makes for a nice rule-of-thumb at cocktail parties, the current market is proving it false.
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The amount of investment currently pouring into the industrial sector is indeed quite sexy, but for the first time in recent memory traditionally yawn-inducing topics like supply-chain economics and sustainable farming techniques in industrial spaces are suddenly at the cutting edge of commercial real estate innovation.
Four commercial real estate experts recently told NAR’s Commercial Connections magazine about the industrial boom in their local markets, and how intense demand has created some interesting real estate action:
- Craig Meyer, SIOR, president of JLL's Logistics and Industrial Services Group for the Americas, says there is an exceptionally-tight industrial real estate market in Los Angeles, featuring what he says is a "16-year-low in vacancy" with rates "under 2 percent."
- Allan Gump, CCIM, SIOR, executive vice president of the industrial division for the Dallas-Fort Worth office of Colliers International and current president of SIOR, is seeing a strong demand for industrial space in his market as well. "We hold the distinction of the largest amount under construction (20 million square feet) of any market in the country. It's a fairly recent phenomenon. We don't see anything abating in terms of demand."
- Paul Kluck, SIOR, the first vice president of CBRE in Denver, notices the same boom. "From a development standpoint we delivered about 3 million square feet of new construction last year, set to deliver 5MM sq ft this year. Largely trying to capture the new demand from e-commerce."
- According to Vanessa Herzog, CCIM, SIOR, senior vice president at Kidder Mathews in Tacoma, Wash., the cost of developing smaller industrial spaces in Washington State has become prohibitive to speculative development. “[L]ease rates have climbed higher than this area has seen, ever. Shell rates are above $0.40 for most spaces, and smaller spaces are cresting $0.50. Office add-on rates are above $0.90 and up into the $1.15 range for high- demand locations."
As a result of this intense demand, commercial real estate professionals are becoming increasingly innovative in order to compete. The sector is seeing a large growth of distribution centers for e-commerce, an increase in indoor farming facilities for growing marijuana, more industrial hydro- and aquaponic farming, and the implementation of sustainable heating and cooling technology in industrial spaces.
E-commerce has propelled industrial real estate in recent years. Today's consumers are accustomed to almost instant gratification, so slow delivery is no longer an option.
"There is a revolution in how industrial is being used for e-commerce fulfillment," says Meyer. "Around 30 percent of U.S. demand for industrial property and 50 percent of all leases signed for buildings greater than 50,000 square feet is driven by e-commerce."
Distribution centers are springing up in urban markets all over the country because they enhance the efficiency of supply-chains and increase value for investors by reducing transportation expenses and getting items into the hands of consumers and shop owners much more quickly.
Source: "Featured: Industrial Revolution," Commercial Connections (Aug. 9, 2016)