Overheard: Industrial Investment Outlook

Overheard: Industrial Investment Outlook

How do real estate investment experts view the industrial outlook? What’s the impact of foreign investors? Where are we in the cycle? Read on to see what industrial investment experts had to say at I.CON ’15 in Long Beach.

Our panel: James Carpenter, Executive Director, Cushman & Wakefield, Inc.; Nicholas Anthony, Executive Vice President and Chief Investment Officer, Duke Realty; Stanley Alterman, Executive Managing Director, USAA Real Estate Company; Christopher Chang, Vice President, Goldman, Sachs & Co.; Tom Wang, Exeter Property Group.

• What we are seeing in investment that’s different than two years ago is the amount of capital available. One investor is boasting that they have $40 million ready to deploy in the real estate sector. We’re seeing increased allocations to real estate across the board, with a majority going to the United States and the robust real estate economy.
• Foreign investors have different goals. They are looking long-term, which is a big change from the past – far beyond the typical 3-5 year horizon. This long-holding of assets –in the 30-year range – will have an impact on portfolios in the future.
• Complicated tax structures are driving some of the decision making too.
• It’s important to note that big investors are both foreign and domestic – there’s a lot of U.S. capital to be invested.
• We’ve had five-and-a-half straight years of net positive inflow into the core space and 20 months of positive absorption in industrial – it’s extremely stable.
• Cycles move – when you see capital moving toward industrial, it naturally pushes yield down. There could yield, over the long-term, some change, but not in the next year or two.
• People tend to emphasize interest rates too much. It’s the amount of capital that’s making investment and real estate tick.
• Pricing is at peak levels, and we’re seeing core assets trading 20-25 percent higher than replacement costs. This is a good thing for developers!
• While rates may rise, there’s a lot of room to run and the underlying fundamentals of the industry trump the interest rate increases. Spreads are still very good compared to 2007.
• E-commerce is driving new construction, as companies are retooling their supply chains. What does it mean for the “last mile?” There will be a huge surge in close-in, adaptive reuse for distribution and fulfillment centers.
• Replacement costs have been steadily going up – especially for land – over the last year.
• Users want newer, more high-quality product in good locations. Amazing buildings in bad locations still won’t do as well. Amenities, amenities, amenities.
• There’s an overabundance of real estate on the market, but a lot of it is groups unloading their “problem children.” It comes down to functionality of the asset; buyers proceed with caution.
• Fundamentals are good and while it’s hard to predict the future, the industry is enjoying a good, stable market. One benefit of this cycle is that it hasn’t truly exploded – it’s been a measured and consistent rise, so probably less debt than prior cycles.
• What inning are we in for capital and leasing? Our experts averaged that for capital, we’re midway through the cycle in inning 5. For leasing, we’re nearing the peak in inning 7. One expert hedged his bets by saying that we’re, “in between games of a double-header.”

Kathryn Hamilton, CAE

Kathryn Hamilton, CAE, is Vice President for Marketing and Communications at NAIOP Corporate.

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