Don't Worry About Industrial Capital Markets. They're Doing Fine.
We’re in the midst of the Golden Age of Industrial, but the recent uncertainty in world markets, even before Brexit, had investors and developers wondering how long the boom period for industrial will last. Specifically, how will the ripple effect from foreign markets affect industrial capital?
Avison Young principal Erik Foster says not to worry. (And as practice leader of the firm’s industrial capital markets group, with over $3B in transactions over a 20-year career, he should know.) Here are Erik's observations on industrial capital.
1. Business Will Continue To Grow
Erik says a combination of the industrial market’s strong fundamentals, aggressive investment strategies and the amount of equity and debt capital chasing asset sales will lead to steady activity in capital markets over the next 12 to 18 months.
While development has been coming online to meet demand, the vacancy rates in many of the major bellwether markets such as Chicago, LA/Southern California and New Jersey remain historically low. Demand from e-commerce and other distribution and warehouse businesses should keep leasing activity at a steady pace, which will continue to positively impact values and increase asset pricing.
2. Money Is Flowing To Build-To-Suit Projects
While straightforward investment sales remain a tentpole in the sector, Erik says a growing number of clients want to raise equity for large build-to-suit projects in key industrial markets, particularly spec industrial.
3. No Hard Landing Is Coming
Erik says strong investment demand for industrial assets, especially by foreign entities, won’t regress and pricing will remain strong, indicating sustained growth in the sector. The main keys to the industrial market will continue to be consumer demand and population growth—two factors Erik does not see slowing anytime soon.
Erik also believes shifts in logistics nodes and even the impact of the Panama Canal on East Coast ports will create opportunities in secondary markets such as Charleston, Norfolk and Savannah (shown). E-commerce is also a big driver of industrial space.
