Significantly, says Josh Gelormini, vice president of research for JLL's capital markets team, the cross-border share of industrial transactions is higher this year than last, even though the dollar volume is lower due to the overall slowdown in commercial real estate sales. "Whereas cross-border transactions overall declined about 70%, they declined only about 50% in the industrial sector," he reports.
Another significant feature, the JLL exec adds, is that 86% of the industrial cross-border volume involved global investment funds rather than individual foreign investors. "I think we were on the cusp of seeing more attention being paid from global investors and foreign entities to the industrial sector as a means of diversification," he tells GlobeSt.com. "It's difficult to be sure at this juncture because the trends are being dictated by the credit crisis and all sales are off. But we've seen a net increase in foreign investment in the sector as a percentage of total sales, though not in actual dollar amount."
According to Gelormini, many foreign and global investors have discovered the industrial market through their interest in retail real estate, which makes up the second largest source of cross-border investment, after offices. He says they reason that long-term growth in the retail sector inevitably will generate corresponding growth in distribution and warehousing.
But the primary attraction of the US industrial market, he continues, is also its biggest obstacle. "The US distribution and logistics market is very mature," he explains. "In some of the largest coastal markets, there are high barriers to entry. You have those supply constraints in place, which means values are likely to increase substantially over time. On the other hand, pricing tends to be very high as a result."
Gelormini acknowledges the declining value of the dollar makes high costs less of an obstacle than in the past. But he points out that other obstacles have taken their place. "From a currency standpoint, it's never been as attractive a time for European and other international investors to enter the US market," he says. "But there are concerns about the broader economy. You're not seeing a rush to get in and take advantage of the declining dollar because of overall economic concerns and the credit crunch."
He notes the market is also not experiencing a drop in internal pricing that would create the kind of gold-rush atmosphere that might overcome foreigners' qualms about the economy. "On the owners' side, defaults are very low historically throughout the commercial sector," he says. "You certainly haven't seen prices plummet, so there's not a case to be made for bargain-basement shopping."
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