Will Oil Price Plummet Benefit PHX Industrial?
JLL's Mark Detmer says sub $60/barrel oil could be a game changer next year for the industrial market. For logistics firms, fuel costs and labor rates are key considerations. Lower gas prices could mean logistics firms will be more willing to distribute product from cheaper labor markets like Phoenix, Reno and Salt Lake City than more expensive coastal labor markets like LA, Oakland and Seattle. “You're in a situation where e-commerce companies, warehousers and distributors are always solving for the lowest operating cost. When transportation is significantly less expensive than before, it changes the model,” Mark says.
Mark also says capital demand is increasing for industrial product, resulting in rising property prices and declining cap rates. While this is a universal experience in the US, cap rates along the West Coast have especially compressed: LA averages 4.5% caps. In contrast, Mark says investors see a better risk-adjusted return here, where caps range between 5.5% to 6%. Recently, Mark helped sell Buckeye Logistics Center (here), a two-building, 684k SF distribution facility to IIT Acquisitions for $44.3M; it's fully leased to HD Supply, Victory Packaging, Mor Furniture For Less and Kellogg. Mark is also marketing nine warehouses in Phoenix, totaling 460k SF, to this hungry investor market.