“Industrial capital markets have clearly moved out of the zero cap rate environment that defined the last cycle. Today, we’re operating in a more disciplined market. Capital costs are higher. Leasing fundamentals have moderated, and investors are being forced to price risk much more carefully,” said Andrew Briner, executive managing director, Newmark, setting the scene for a panel discussion on industrial capital markets at NAIOP’s I.CON West this week.
Joining him were Ryan Collins, executive vice president, EastGroup Properties; Brian Russell, executive vice president, CBRE; Pete Williams, senior vice president of investments, Western region, CenterPoint Properties; and Tucker Wincele, managing director, Invesco.
“What makes today’s discussion particularly valuable is the range of capital perspectives we have on stage, from public REIT to pension fund capital to large equity fund capital, along with real-time market intelligence from the brokerage frontlines,” Briner said.
As you look across the Western U.S. today, what types of opportunities are most compelling and what are you actively avoiding?
“We’re still looking at development sites in all our core markets,” said Collins, naming Phoenix, Tampa and Dallas as high-growth markets in focus. “I’d say for us, the opportunity lies in continuing to find sites to help increase our development pipeline.”
“I think we’ve got a lot of conviction for anything with an advanced manufacturing orientation to it right now,” said Williams, “So we’ve been most active in the Bay area, the South 880 corridor. There’s a lot of momentum down here in Southern California with aerospace and defense that we’re monitoring pretty closely.”
“There’s limited core capital out in the market, and I think there’s a lot of really good product you can get at or below replacement cost,” said Russell. “Vacancies are starting to tighten up… I think we’re all time low in the [U.S.] construction pipeline over the last 14 or 15 years. So those trend lines are telling you things are going to start to move in the right direction on the rent side.”
The market is unquestionably more complex than it was a few years ago. What do you see as the biggest challenge to executing investments in today’s environment?
“One of the biggest things that we continue to encounter is a pretty wide bid-ask spread,” said Williams. “It feels like institutions have been gradually marking assets down quarter over quarter and doesn’t feel like it’s truly caught up with where the market is.”
“Most investment professionals are big believers in the long-term performance and demand drivers of Southern California,” said Wincele. “That being said, the data is not super encouraging.”
Collins agreed. “On the positive side, supply is at a record low, so I don’t think it’s going to take much on the demand side to get things really going again in L.A.”
“I think we’re going to see pricing start to point in a positive direction,” said Russell. “The other piece – outside of the local fundamentals – is the liquidity and the debt markets. There’s a lot of debt capital; I think equities are starting to catch up. There are enough bright spots in the fundamentals that if you want to place a bet, you can make a pretty good argument.”
Many investors have adjusted their playbook over the last 18 to 24 months. How has your investment strategy changed compared to 2021 and 2022?
CenterPoint typically seeks out well-located, infill, logistics-oriented real estate, Williams said. “We’ve got a strong portfolio in the South Bay and the L.A. markets. I would say going forward it’s probably less of a focus on that; it’s probably more focused on Class A.” The company is looking to expand into markets like the Inland Empire or Phoenix.
“Sounds like we’ve got similar strategies,” said Collins with a laugh. “I’d say back in 2021, we were doing more forward deals. We were looking at vacant buildings. We haven’t really been focused on those types of deals anymore.”
“I think we’re probably not likely to take on an investment that’s got significant leasing risk right now, especially in a market like L.A. or the Bay Area, at least until the fundamentals have improved,” he added.
Risk is obviously priced differently today than it was two years ago. How do you think about pricing risk today?
“For us, it goes back to just having a long-term perspective,” said Collins, adding that while they might underwrite market rents more conservatively, they believe in the infill submarkets that they’re in long term.
“We’re not super sensitive to interest rate movements,” Williams agreed. “Generally speaking, we’ve gotten more conservative in our underwriting. We are significantly more sensitive to underwriting deals with vacancy or lease-up risk or credit risk, so it probably drives our asset selection in terms of what we really want to chase more so than individual underwriting assumptions,” he explained.
How much do factors like volatility, tariffs and geopolitical uncertainty influence you in your underwriting?
“We’re real estate investors, not macroeconomic forecasters,” said Wincele, adding that swings in the 10-year Treasury or headlines on political or geopolitical events by and large don’t affect their day to day. (With the caveat that “Liberation Day” – when President Donald Trump announced tariffs on April 5, 2025 – was an exception, as “everyone hit pause.”)
“When you talk about something like tariffs, we’ve got a portfolio that’s got a tremendous amount of port exposure,” said Williams. “As we look forward, we look to diversify that a little bit as supply chains get more complicated.”
When you look at deals today, what aspect of the underwriting makes you the most cautious or keeps you up at night?
“This is probably more of a primary market, California-specific concern, but land use [makes us cautious],” said Wincele, sharing that some Southern California cities/municipalities have seemingly overnight taken away land use rights and effectively decimated the value of existing industrial buildings in those cities. “It’s just caused us to be very, very cautious. Even when there are rumblings of cities changing land use… It’s something you’ve really got to pay attention to because it could potentially affect the releasability and liquidity of your investments.”
“We’re seeing land use stuff pop up seemingly every week,” agreed Williams.
“I’d say another one is just how long it takes to get these sites entitled,” said Collins. It’s not just L.A., it’s other cities as well, pushing back on warehouse use. While entitlements used to take 18-24 months, it could stretch longer, shifting the entire timeline.
Are there any indicators that you are watching closely for a true recovery?
“We look a lot to our current pipeline and how leasing is going,” said Russell. That can help to gauge the overall market in addition to GDP growth, demographics and other data sets. “But I’d say we get the biggest real-time data from our projects that are under construction and how those are leasing.”
“I think we just need comps,” said Williams. “The more comp support we can get, the easier it is to bring something to [investment] committee with some conviction.”
“I wish I had some great esoteric metric for everyone to run out and look up, but it’s really supply and demand. It’s vacancy, availability and net absorption,” said Wincele.
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