Optimism Prevails in Industrial Capital Markets This Year

There is a new sense of optimism in the industrial capital markets this year compared to 2023 with Colliers analysts finding investor sentiment has boosted significantly.

The firm’s Ryan Vaught, Southeast, said there’s been a healthy uptick in capital evaluating speculative development deals, “though it’s hard to delineate how much of this activity turns into actual capital deployment.”

In the Midwest, Jeff Devine said there are twice as many active buyers in the market compared to the prior year.

“There’s also an increased number of sellers evaluating sales but still muted ‘green-lighted’ sales initiatives in the first 45 days,” Devine said in prepared remarks.

“While Chicago has been notably quiet on new deals brought to market in Q1, a number of institutional trades have occurred on opportunities that were brought to market in 2023 and subsequently pulled.

He said that bid lists indicate new opportunities in secondary Midwestern markets “have been incredibly healthy,” as institutions express the thought that the worst of the interest rate volatility of 2022 and 2023 “is now behind us.”

There’s a growing consensus on core cap rates expected to drop to the low 5% range in key markets like Southern California and Northern New Jersey, according to Colliers’ Mike Kendall, who focuses on the West. He added that second and third-tier markets are anticipated to return to normal spreads.

The analysts said there is pent-up demand and investors might be more willing to transact this year despite the interest rate environment.

Vaught expects a push-pull phenomenon where capital balances are waiting on the forecasted declining interest rates, while simultaneously monitoring the asset class fundamentals potentially deteriorating in the short term.

He said there is no shortage of liquidity.

Kendall says the forecast for 2024 is a decline in interest rates and investors will come off the sideline as they face mounting requirements to spend dry powder. Helping matters is pricing normalization settling in.

Jeff Devine emphasized that stability in the treasury markets is essential.

“Only when buyers and lenders feel confident in the treasury market’s stability will they sharpen their pencils and become more aggressive in competing to deploy funds,” he said.

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