Insights into Global Capital Flows
How are different funding sources looking at the industrial market? This was the question of the day in a session on capital flows at NAIOP’s sold-out I.CON: The Industrial Conference this week in New Jersey. Five investment experts, led by moderator Erik Foster, Avison Young principal and leader of national industrial capital markets group, dived into capital investment’s interest and deployment across industrial real estate.
The group began with a rundown of where the markets stand now. Blackstone Group Managing Director David Levine said the industrial markets “feel pretty good” with solid growth and vacancy in single levels. But supply could be higher given U.S. GDP’s 3 percent growth, he noted.
“It’s a good point in the cycle,” said Marshall Loeb, CEO of EastGroup Properties. “We’ve had more expansions within our portfolio. With three million square feet in Charlotte, we’ve had 11 companies expand in the last year.” These tenants range from e-commerce to home building (pool supply, carpet companies, etc.) to the local Budweiser distributor. Historically, over the last five years, absorption has far outpaced supply, said Amy Curry, regional director with GLP.
Jay Cornforth, managing partner, global head of industrial, with Brookfield Property Group, said that globally, there are events in Europe that have the company hitting the proverbial pause button. In Asia, expansion is happening but we should expect a downturn could happen.
Levine said that in a maturing cycle, it’s harder to find investments for growth. The Canadian markets are significantly underpenetrated, so Blackstone made significant investment there in a key company. Comforth said that foreign investors are seeing opportunities here in the domestic industrial markets, calling it the “safest investment” and citing geopolitical tensions that drive investors to the U.S.
Industrial demand has a direct correlation to U.S. GDP: Unemployment is low and the manufacturing index is high. There could be a tariff- or trade-related hiccup, but Comforth said his company is confident in continued investments. Loeb said interest rates might tick up some, but industrial will stay strong, and rising interest rates ultimately means the economy is doing well.
When does the industrial run stop? Loeb says this was heavily discussed at this week’s NAREIT conference. Perhaps there’s no end in sight: Investors are leaning toward industrial and away from retail. Industrial stock growth outpaces both retail and multifamily.
CenterPoint Chief Investment Officer Jim Clewlow said the company’s acquisition and development arms are symbiotic. There are some markets, like New Jersey, where it’s ultratight, and the company is primarily looking for opportunities close to the ports. Comforth said Brookfield Property Group has redeployed $2 million in capital, focusing on nine coastal gateway markets (the company was once in 25). He says development in New Jersey has been pushed down to Exit 2 – almost to Pennsylvania – for infill development, saying it’s a lot hard than it was 20 years ago to find “plug-and-play sites.”
Curry said GLP is partnering with customers in an ecosystem that’s not just real estate but includes others that have a connection to the industry. The company has established a fund to invest in technology, robotics and big data companies to help understand how these firms are serving the global business community. It also gives GLP a better appreciation for their tenants.
What percent of tenants are focused on the last mile, and what strategies are helping them get closer? Curry said it’s impossible to pin down that percentage as tenants are constantly evolving and striving to get close to the population bases. Comforth said that e-commerce adds 50 million to 60 million square feet of demand for industrial space annually, still a small piece of industrial, noting that it’s only in its proverbial second inning of growth and that we should expect it to remain strong.
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Kathryn Hamilton, CAE, is Vice President for Marketing and Communications at NAIOP Corporate.