DALLAS-At the end of 2012, Jack Fraker, CBRE's managing director of the company's Capital Markets Industrial Practice and vice chairman with the Investment Properties-Institutional Group told GlobeSt.com that cap rates among industrial product would continue to compress throughout 2013, complete with strong sales volume. Halfway through the year, Fraker stands by those statements for a variety of reasons.
For one thing, the demand for industrial properties is far outpacing the available supply. "It's something like a 4:1 or 5:1 imbalance," Fraker tells GlobeSt.com in a recent interview. "A lot of capital wants to be in real estate, but there aren't a lot of available deals on the market. The competition is resulting in a downward pressure on cap rates."
But it's not only competition that's pushing cap rates. Leases negotiated in 2008, 2009 or even 2010 were done so during the economic downturn. In other words, "way below the historical market average for those types of properties," Fraker says.
Given the standard lease rate in the industrial sector is five years, many of those leases are set to expire shortly. As such, today's industrial investors are paying for the 2007-2009 rent roll. "They know that when leases renew in 2014-2015, they'll get a higher lease rate from the tenant, and improve the cap rate and yield," Fraker says. Just as important as the class and geography of an industrial product, therefore, is the lease roll. "People involved with acquisitions are taking all of that into consideration," Fraker comments.
Another interesting mid-year trend is that of the industrial investor profile. Fraker says the public REITS, non-traded REITs and large private equity funds are back and trying to get into the industrial game. "We're even seeing foreign investors showing up," he adds.
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