Investors Crave ATL Industrial
In Alan Pontius's 30-year career, he's never seen anything like this.
A Marcus & Millichap vet, Alan says industrial has always been the property you "acquire for just preservation of capital. Now industrial is the new retail.” He made that declaration during our 5th Annual Atlanta Industrial Real Estate Summit this week at the Hyatt Regency.
At the event, our all-star lineup said industrial cap rates are now floating in the 6% range for quality assets, and even as low as mid-4% for those in ideal submarkets. More from Alan: “This big spread that used to exist—and when I say used to exist I mean a year ago… has almost collapsed overnight.”
Trammell Crow Co's Mark Dishaw (here with United Consulting's Jay Ashtiani) says constrained new construction coupled with a surge of tenant demand could have Atlanta industrial seeing something it's almost never seen: rising rents. Oakmont Industrial's Tom Cobb says rents now are up a dollar from the $2/SF basis during the recession. “But let's not kid ourselves, this is Atlanta,” Mark adds, saying once developers start delivering 12M SF a year in new product, those rents will crash down to Earth again.
What may be keeping spec in check is the proliferation of e-commerce. Tenants using distribution centers for e-comm have very specific needs that spec may miss, says Prologis' Greg Bradley—here with Forcum Lannom Contractors' Keith Johnson. “The building depths are specific,” he says, adding that warehouses now need at least 36-foot height clearances. (Also, you can't put Etsy Star Wars action figures too close to Etsy Star Trek action figures, or else they'll fight.)
Our moderator Hartman Simons' Summey Orr, Tom, Greg, Mark, and Alston Construction's Paul Little. Tom says any space over 400k SF, tenants want ample employee parking, reinforced floors and even trailer parking. Greg says e-commerce is one area that's seeing Walmart push into logistical growth. In fact, the retail giant, “caught off guard with Amazon's growth,” has plans for 10 1M SF distribution centers for e-commerce, Greg says.