CHICAGO—One of the persistent themes of this week's RealShare Industrial conference in Chicago was that the sector has many sources of strength. The impact of e-commerce garners a lot of attention, but other more traditional sources of demand have also fueled new development and attracted dollars from the investment community.
Erik Foster, principal of Avison Young's capital markets group, moderated a Tuesday afternoon discussion on capital flows, and began by asking a panel of experts to assess the current state of the market, and how long the present conditions would last.
“I don't have a crystal ball,” said Scott McKibben, chief investment officer of Brennan Investment Group, “but there are factors other than e-commerce that have made the market strong.”
He pointed out that the US manufactured about nine million automobiles per year at the recession's low point, a number which recently has risen to about 17 million. That has pushed the vacancy rates in many auto-heavy metro areas down to historic lows, and at the same time sparked record levels of construction.
Furthermore, homebuilders are also expanding, and by adding all that activity to the massive expansion of e-commerce, it has created a historic market. “I see all these things working in conjunction,” McKibben said. And even though we have seen dozens of consecutive quarters of positive absorption, he and other Brennan officials believe that this growth will continue at least another 12 to 24 months.
“It does seem like we have a paradigm shift, and it will last for a while,” added Mark Glagola, senior managing director, capital markets, Transwestern. There are hundreds of billions in dollars waiting to be invested, and potential buyers have taken note of the sector's strength, making many eager to make the jump.
There may be even more money available for the sector that some think. James N. Clewlow, chief investment officer, CenterPoint Properties, said groups such as CalPERS, the largest public pension agency in the US, are talking about increasing their allocation to real estate.
And considering that industrial is now a darling of the investment community, it will certainly get its share of any boost. “This is a wall of capital which is chasing yield,” he said.
All that competition for yield has some buyers looking beyond the class A properties. “We travel a lot in the B market,” said McKibben. And even though most buyers prefer the safety afforded by class A, there are a significant number of B buildings sited in good locations around the US that draw interest. “We get several calls a week from new buyers that want to get into class B.”
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
