Industrial analytics and investments

Investing in an Ultra-competitive Industrial Marketplace

The opportunities for industrial real estate investment are seemingly endless, with capital at the ready. At I.CON West, June 6-7, 2019, in Long Beach, California, experts will dive into the investment pool to share their outlooks on what regions and what types of properties are most attractive to investors, how smaller investors can compete, and any unforeseen headwinds that might have an impact. NAIOP asked Erik Foster, CCIM, principal and practice leader of Avison Young’s national industrial capital markets group, based in Chicago, to share his perspectives.

Erik Foster, CCIM

NAIOP: Where are the primary opportunities to invest, and what types of industrial development are most attractive to investors?

Foster: The classic top markets for industrial development (Inland Empire, Atlanta, Dallas, Chicago, Lehigh Valley and northern New Jersey) are going to remain hot, thanks to their proximity to population bases and long-term industrial strategies that have positioned them at the top. Nonetheless, I believe there are some markets that are becoming significantly more important as population shifts occur and logistics networks change.

Consider the Southeast U.S. and a city like Charlotte, North Carolina. The entire Carolinas are experiencing huge population growth thanks to things like a moderate cost of living, a temperate climate and an overall great quality of life. The region has a pro-business environment that is helping to drive growth, and so it is attracting both expanding businesses and a skilled workforce.

This, of course, leads to greater demand for new and state-of-the-art industrial facilities, and particularly logistics facilities that support ever-climbing e-commerce expectations and serve as linkages for both sea ports and inland ports.

These confluences make a market like Charlotte alluring to investors. In short, real estate is just one element of consideration in an overall business strategy. When a company decides to put a logistics facility in place, they will look at the full picture of labor costs, rental rates and demand forecasts, among other factors.

NAIOP: Who are today’s primary investors in industrial real estate?

Foster: There are varying pools of capital that are focused on the industrial sector. These pools of capital are far more diverse than I’ve seen in my career and range from private investors to large institutions, and everyone in between. Many continue to look to core markets for the stability they provide, while others are looking to secondary and tertiary markets as they search for higher yields.

The industry will continue to see foreign capital interested in the U.S., with particularly private offshore investors looking for the stability and hedge against inflationary influences seen in other parts of the world. The U.S. is still one of the safest markets in the world to invest in and the metrics surrounding industrial real estate raise it to the top of the list as one of the most desirable asset classes.

NAIOP: How long with this demand continue, and are there headwinds ahead?

Foster: The only headwinds I can see right now are things that are ultimately beyond the control of real estate. The sector’s fundamentals are solid, demand continues to climb, and – most importantly – we are not over-developing. Developers learned during the Great Recession that keeping pace with market demand is far superior to over-building.

Today there is real equity required to do development, and that equity is usually a sophisticated investment partner that is also doing their homework before investing. Essentially, both developers and investors are seeking strong partnerships and using the availability of rich, useful data to make smart decisions.

A pickup in interest rates might cause a pause, but it won’t slow things down too much. Industrial is the place where companies want to invest. The deal flow is the challenge, as so many assets have traded in recent years, but the capital is out there.

NAIOP: With all of the competition for deals, how can smaller investors compete with large-scale institutional investors?

Foster: There are always opportunities for smaller investors, particularly those tactical enough go toe-to-toe with the big guys. The challenge they’re facing is that some of the smaller investment opportunities are increasingly attractive to larger investors who are looking for any and all opportunities in the industrial game. So smaller investors have to be a little more sophisticated and strategic in their choices and partnerships. But there always have been and always will be opportunities for investors of all sizes.

Hear more insights from Foster and other leaders in industrial at I.CON West, June 6-7, 2019, in Long Beach, California. View the full agenda and register online.

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