Furthermore, “we see broad rental growth across nearly every market,” says Meyer, and JLL expects that trend to continue.

But the sector's strength is not the only aspect that institutional investors find appealing. Ten years ago, Meyer says, buyers typically purchased just one property at a time, making it difficult to invest large amounts of capital. But the emergence of huge, national-scale portfolios, such as the Blackstone Group's IndCor, which GLP purchased in 2015 for $8.1 billion, transformed the market. “That was a sea change,” says Meyer.

“I don't see another mammoth IndCor-type deal in 2017,” he adds, but investors will get opportunities to buy “second-generation” portfolios. “These were created and aggregated in the last few years,” and the owners now have many leased up and ready for sale. Most in this new group will sell for between $100 and $500 million, and consist of properties in a particular region.

And even though the industrial market has had a good run over the last seven or eight years, Meyer believes it still has the potential for yet more expansion, which in turn should fuel investment. Distributors have been building new facilities, from big box fulfilment centers to smaller ones inside dense urban areas, to reset the supply chain and enable quicker product delivery. This transformation is still hitting secondary markets, and as vacancy sinks in more mature core markets, even these should see more new construction, including multi-story distribution buildings.

“As market fundamentals continue to improve, institutional capital will continue to pursue high-grade, long-term leased industrial assets,” he says. “We expect 2017 to be another exceptional year for everything from single industrial asset trades to regional and national portfolios.”

CHICAGO—Investors continue to have a big appetite for class A industrial product and that has the sector on pace to see its second-largest year since 2008 in terms of volume, according to JLL's third quarter investment report.

By the end of the quarter, the US market had seen $31.1 billion in 2016 investment sales, a 28.9% drop from the historic year of 2015, during which a number of mega-portfolios worth billions traded hands. Smaller portfolios sales, many below $150 million and focused on a single market, have helped drive the investment market this year. And cap rates sank to just 5.0% by the end of the third quarter, a year-over-year drop of 19 bps.

“The industrial sector has become far more attractive to the institutional investor,” Craig Meyer, president, industrial brokerage and industrial capital markets, Americas, tells GlobeSt.com. “They view it as a safe haven.” And given its performance throughout much of the US, investors have widened their scopes to include many secondary markets, such as Phoenix and Indianapolis, in addition to core regions like Chicago, New Jersey and the Inland Empire. For instance, Phoenix led the way in total space traded in the third quarter as volume reached four million square feet.

In the third quarter, the US vacancy rate fell to just 5.8%, a decline of 30 bps and a new record. What's remarkable is that industrial inventory expanded by 214 million square feet, or about 1.8%, in the past year. But demand continues to outpace new supply. Tenants absorbed 72.7 million square feet in the first three quarters of 2016, a 23.1% increase over the same period in 2015, and developers delivered 59.3 million square feet.

Furthermore, “we see broad rental growth across nearly every market,” says Meyer, and JLL expects that trend to continue.

But the sector's strength is not the only aspect that institutional investors find appealing. Ten years ago, Meyer says, buyers typically purchased just one property at a time, making it difficult to invest large amounts of capital. But the emergence of huge, national-scale portfolios, such as the Blackstone Group's IndCor, which GLP purchased in 2015 for $8.1 billion, transformed the market. “That was a sea change,” says Meyer.

“I don't see another mammoth IndCor-type deal in 2017,” he adds, but investors will get opportunities to buy “second-generation” portfolios. “These were created and aggregated in the last few years,” and the owners now have many leased up and ready for sale. Most in this new group will sell for between $100 and $500 million, and consist of properties in a particular region.

And even though the industrial market has had a good run over the last seven or eight years, Meyer believes it still has the potential for yet more expansion, which in turn should fuel investment. Distributors have been building new facilities, from big box fulfilment centers to smaller ones inside dense urban areas, to reset the supply chain and enable quicker product delivery. This transformation is still hitting secondary markets, and as vacancy sinks in more mature core markets, even these should see more new construction, including multi-story distribution buildings.

“As market fundamentals continue to improve, institutional capital will continue to pursue high-grade, long-term leased industrial assets,” he says. “We expect 2017 to be another exceptional year for everything from single industrial asset trades to regional and national portfolios.”