CHICAGO- Even though industrial markets trail most other property types in demand and sales volume, projected increases in imports and exports during the next few years promise to improve distribution channels, according to executives at Cushman & Wakefield’s Midwest Industrial Conference held in Chicago Thursday.
Though the top floor of the Aon Center was a strange venue for the roughly 200 industrial professionals, EVP Jim Dieter spent the day both giving pep-talks to the junior executives and pitching the company’s new global-thinking to clients also in attendance.
However, it was Greg Vorwaller, head of capital markets for the company, who set the tone of cautious optimism. In a State of the Market presentation, he said second quarter research shows the industrial vacancy rate has dropped slowly but steadily to 10.4%, and rents continue to rise slightly, thanks in part to very little new construction. “The forecasts continue to be positive,” he said.
Cap rates for industrial have been high, with the average cap rate in an industrial deal at 7.8%, compared to 6-7% for other properties, Vorwaller said. Leasing activity is up 27.6% from the first half of 2010 to 205 million square feet, and investment sales so far this year total 70 million square feet, up almost 160% from 1H 2010. “We expect continued transaction activity, especially with the AMB-ProLogis merger throwing off excess property portfolios of $100 million,” he said.
Dieter asked Vorwaller to give some take-away points on the market outcome, but Vorwaller said there’s too many variables in play, including the current uncertainty, fuel costs and the coming Panama Canal expansion that will shift shipping from the West to East Coast. “It’s too early to tell,” Vorwaller said. “I think many decision-makers are taking August off, going on vacation and hoping that things get better when they return. The only thing to bet on is core property, which is performing well, everything else is a crap shoot at this point.”
Keynote speaker Gordon Segal, founder of Crate & Barrel, talked to the crowd about how he brought his firm up from a small husband-and-wife store to one of the nation’s top big box housewares locations.
He said what’s surprised him the most has been the success of Internet sales, and the impact on the industrial market. “I’ve heard that about 60% of all retail sales are researched online,” Segal said. “I can’t imagine why people buy furniture online, I would want to feel how something is made, but about 30% of our business is now from online sales. We now operate three fulfillment centers throughout the country, we have to compete against the other companies like Amazon for speed to ship product.”
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