Recently, a panel of experts from across the industrial market came together at the National Industrial Broker Roundtable to discuss the historic growth recorded in the fourth quarter of 2020, where industrial rents could possibly go from here and what asset types are to be watched.
Hussain Masumi, market manager at Bisnow, emceed the panel, which was moderated by Turner Levison, senior account executive at Yardi. The panel featured: Jeffery Cole, vice chairman, Cushman & Wakefield; Jackie Orcutt, senior vice president, CBRE; Mark Duclos, president of Sentry Commercial and current president of SIOR; and Kim Ford, CEO of Rise Pittsburgh.
Expert Panel: Record Growth Likely to Continue
Each of the panelists came armed with the latest data on their particular sector. Levison began by pointing out that Q4 2020 had the highest industrial sales volume of any quarter since CommercialEdge started collecting industrial data. This included $11.9 billion in completed sales with an average price per square foot of around $100 — an increase of 18.2% year-over-year.
E-Commerce Just Part of the Story
Much emphasis has been placed on the fact that Amazon and other ecommerce companies were responsible for this boom. But, despite the fact that they made up more than 15% of the increase, the truth is that there are other factors at play, too.
In fact, the panelists pointed to other factors that also had a major influence on growth, including increases in consumer and business confidence; the stimulus and Paycheck Protection Program that gave consumers money to spend and companies capital to invest; as well as durable goods that are almost back to pre-2019 levels.
Furthermore, Duclos pointed out that other sectors — such as manufacturing and life sciences — were also getting into industrial and flex spaces, and that they were contributing to the fight over price. Orcutt added that data centers have also had a massive effect on certain markets.
Potential Hazards Down the Line
Granted, the outlook is not all rosy. For instance, Duclos said that the price of steel had tripled, which was greatly increasing the cost of new builds. As a result, he worries that companies building for the Amazon market today will have a rude awakening in 10 or 15 years when Amazon changes its model once again and those properties can’t be leased.
Meanwhile, Ford said that the supply chain was an issue in every industry, and Orcutt reported that few of her clients were interested in leasing for more than five years — which could create issues in five years.
To that end, Duclos shared the concerns of some industry players regarding Amazon beginning to acquire land and develop its own properties moving forward — which could potentially affect lease rates, as well. However, the panel’s consensus on that particular issue was that, most likely, Amazon’s slow shift to owning and developing its own facilities will probably affect only spec developments.
Niche Assets on Watch
With the industrial market now a top performing CRE asset, the industry is attracting interest from players usually active in other commercial sectors, such as office and retail. Taking that into account, Levison closed the panel by asking what newcomers and industry veterans should be on the lookout for.
Cole highlighted alternative industrial assets, such as refrigeration spaces and storage, which remain underserved sectors within the market – and thus, less competitive – for now. Cole also mentioned life sciences space conversions as well as land plays and emphasized that regardless of what type of industrial space investors are considering, they should be looking at second-tier markets as well, as many are showing fundamentals just as strong as primary markets.
Orcutt, too, emphasized second-tier markets, especially in the context of specialized manufacturing and fewer regulatory challenges compared to primary markets , such as Southern California. Orcutt also pointed to the attraction and added long-term stability of industrial spaces with sticky tenants – tenants that have invested heavily in specialized infrastructure for their leased spaces.