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BofA Predicts Weaker Year Ahead for Industrial

NEW YORK CITY-While REITs posted a negative 12.7% total return for the first three quarters, the industrial REIT sector has remained resilient, according to a new report from Banc of America Securities LLC.

By John McCloud | Updated on January 08, 2008

NEW YORK CITY-While REITs posted a negative 12.7% total return for the first three quarters, the industrial REIT sector has remained resilient, reporting a positive 6.4% weighted average total return year-to-date, according to a new report from Banc of America Securities LLC. But the report authors, BofA economists Mitchell Germain and Christy McElroy, say the sector’s strong performance can be attributed largely to the global exposure of two REITs, San Francisco-based AMB Property Corp. and Denver-based ProLogis.

“Both stocks are less susceptible to rising cap rates, are self-funding with less reliance on credit markets and continue to benefit from strong global trade trends, which have resulted in increased demand for bulk distribution space in proximity to key logistics markets,” the authors write in the report.

For the sector as a whole, however, Germain and McElroy believe demand will moderate in 2008 because of a slowdown in macro-economic and employment growth trends. They expect the moderation to result in greater vacancies, pointing to the forecast by Boston-based Torto Wheaton Research of a 50 basis point increase in industrial vacancy rates to 9.9% by the end of next year.

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