'We Don't See The Party Slowing Down': Industrial's Hot Streak Projected To Hold
New numbers have confirmed that 2019 was a monumental year for industrial real estate, with total volume soaring to a record high of $102B, JLL reports.
That propulsion is expected to carry into 2020. JLL predicts industrial volumes in 2020 will continue to boom, with large-scale portfolio deal flows that are slated to finish during the first two quarters of 2020.
Cushman & Wakefield data supports that 2020 forecast. Its 2020 North American Industrial Outlook predicts that “robust consumer spending supported by stable inflation, wage growth and low unemployment bode well for industrial demand.”
The forecast for 2020-2021 is similarly upbeat, including industrial absorption of 459.9M SF, supply levels at 573.4M SF of new product, and average asking net rent up 6.8%. All of that could be buoyed by economic growth, global trade and the growing need for products that include fulfillment centers, bulk warehouses and last-mile facilities.
“For a seventh consecutive year, net absorption in the U.S. will eclipse 200M SF in 2020,” JLL reported. “We anticipate this streak will extend through 2021.”
The top five markets for demand in the next two years are projected to be Dallas/Fort Worth, the Inland Empire of California, Atlanta, Chicago and Pennsylvania's I-81/I-78 Corridor. The hot spots in Texas are particularly alluring, an expert said.
“Dallas/Forth Worth has seen a strong surge of large tenants that has sparked developers to building needed space for that market,” said Carolyn Salzer, head of logistics and industrial research for the Americas at Cushman & Wakefield. “There is plenty of space to keep them growing the market and plenty of tenants that want to be there.”
The other top four are all primary industrial markets that have large population densities, excellent drive time to other large MSAs, easy port (inland or maritime) access and access to industrial labor.
“These make them prime markets to attract occupiers and drive other fundamentals,” she said.
Salzer said a good takeaway is that the industrial market will remain strong in the coming year, and that Cushman & Wakefield is optimistic that the industrial market will continue on this expansion.
“It is the longest expansion on record, so the fact we saw a bit of a slowdown in 2019 is not surprising. [In] 2020 and 2021, we'll see positive growth for industrial real estate, just at a more moderate pace,” she said.
Approximately 40% of demand is e-commerce related, Westcore Properties President and CEO Don Ankeny, a San-Diego based real estate investor, told Bisnow. Industrial and logistics remains red-hot because it is the asset class most in demand, Akeny said.
Like the Cushman & Wakefield report, Ankeny said that nationwide, leasing demand is strong and rent growth of 4% to 5% is expected in the next three years. Westcore owns industrial properties in Colorado, and on Monday closed on a 150K SF property located in Denver's Dove Valley.
Although Denver itself did not make the top five markets in Cushman & Wakefield’s outlook, it’s seeing similar strengths. Just last year, Denver-based Etkin Johnson closed the largest industrial sale ever recorded, at $247.5M, when it sold its 1.95 million-square-foot Colorado Industrial Portfolio to Berkeley Partners in a deal that closed in Q1 2019.
The city has a projected delivery of 7.6M SF, ranking 29th out of the top 50 for demand, with a net absorption of 3.7M SF.
“2019 was the year that Denver was on the map for large institutional investment sales from a national perspective,” said Ryan Good, executive vice president and partner at Etkin Johnson. There were several other large institutional portfolio sales with low cap rates that also attracted attention to Denver, Good said.
One of those marquee-name sales came last November, when ASB Real Estate Investments completed a $72M purchase of three industrial buildings in the airport submarket. Overall, 2019 was also a year of impressive new construction in the metro; by the end of Q4, 6.5M SF was under construction. Good said 33 percent of it is already pre-leased.
“We’re going into what we think is a good supply demand ratio in 2020,” Good said. “But we’ll find out if demand keeps up with supply.”
Comparatively, Denver may not be a top five market, but its industrial market has experienced a 39th straight quarter of positive absorption.
“That’s the longest run we’ve been tracking,” Good said.
A low interest rate environment, a low cap rate environment, an increase in lease rates, and the institutional marketplace is looking favorably upon Denver, he said, which contributes to the positive run.
“The general mood is still very positive,” he said. “We don’t see the party slowing down anytime soon.”