Boom to Bust: What Oil Means to Industrial Real Estate
Industrial real estate has never been hotter, thanks in part to the longevity of the booming energy markets. More production requires more facilities, and no sector has felt the impact more than industrial.
So, naturally an oil plunge is igniting concern over how energy-driven markets will navigate a drop in price and the predictable real estate slowdown that will follow. Bloomberg says that oil-rich cities of Houston, Calgary and Williston, North Dakota, may be poised for a correction following a 45 percent plunge in oil prices since mid-2014.
In advance of I.CON ’15: The Industrial Conference, NAIOP sat down with Erik Foster, principal and practice leader of industrial capital markets with Avison Young in Chicago, to talk about his outlook and what industrial real estate can do to prepare and respond.
NAIOP: Will the decline in oil pricing affect industrial?
Foster: Oil price declines in themselves will not dramatically affect the demand by investors for industrial product, nor will it impact allocations of capital towards or away from industrial product. If oil prices remain depressed, what may be impacted most is logistics configurations and site selection. For example, we may see less rail centric-logistics than truck driven. Also, many developers have not seen the decreases in construction costs given the decrease in this commodity; therefore, rents should remain in check.
NAIOP: Who stands to gain from the re-shoring of manufacturing?
Foster: Four states that have the most opportunity: Michigan, Ohio, Indiana and Wisconsin. Look for companies to continue to look for quality labor, at a low cost, with a the business-friendly state governments in the Midwest as potential sites for their facilities.
NAIOP: Beyond plastics, what industries are increasing in production and exports?
Foster: From a Capital Markets perspective, the major markets of LA/Long Beach, Chicago and New Jersey will be the key hubs for importing and exporting, given their proximity and reach to dense populations throughout the US. As a result, investment will continue to be formidable in these markets. Yet as populations continue to shift to urban areas and warmer climates, look for areas such in the Southeast, like Miami, as well as Phoenix and in-fill urban areas in Chicago and the New York regions to continue to grow their industrial square footage.
Hear more from Foster and a venerated panel of industrial experts discussing Trends to Watch: Beyond Cross-dock and E-commerce at I.CON ’15, June 10-11 in Long Beach, California. See the conference website for details on who attends, hot sessions, and project tours.
Kathryn Hamilton, CAE, is Vice President for Marketing and Communications at NAIOP Corporate.
