Category: Industrial

Despite a Steep Drop in Volume, Industrial Remains the Shining Star of the CRE Universe

The overall slowdown in investment sales activity that affected all commercial real estate assets in the second quarter is not expected to leave a lasting mark on industrial real estate.

The industrial sector has been deemed one of the top performing commercial real estate asset classes, due to low vacancy rates, rising rents in some markets and positive net absorption.

But despite solid fundamentals, investment sales volume in the sector decreased by 50 percent in the second quarter compared to the year before, to $10.3 billion, according to data firm Real Capital Analytics (RCA). According to David Bitner, head of Americas capital markets research at real estate services firm Cushman & Wakefield, in his team’s tally, industrial deal volume was down by about 43 percent in the second quarter compared to the same period in 2019 From the first quarter of 2020 to the second quarter, there was a 46 percent decline in industrial sales volume, he adds. Bitner attributes this to the slowdown in investment activity caused by the coronavirus pandemic beginning in March, as most deals across every property type went into freeze mode.

“We were already anticipating a slowdown on the industrial side pre-COVID-19. People were ready for that. But coming into the downturn, we were in such a fundamentally better place than in previous downturns,” says Carolyn Salzer, director and head of industrial research for the Americas at Cushman & Wakefield. “Rents are still growing… The market is a lot smarter this time around, and with the e-commerce acceleration, it’s causing such a strong demand in the industrial market.”

Net asking rents on industrial properties rose by 100 basis points quarter-over-quarter and 6.3 percent year-over-year to $7.96 per sq. ft. in the second quarter, according to research from real estate services fir CBRE. Rents on warehouse and distribution center properties rose by 5.6 percent year-over-year to an average of $6.68 per sq. ft. These rates are at all-time highs, according to CBRE research.

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Blackstone buys South Florida warehouse portfolio for $94M

The deal shows there remains strong demand for industrial properties in South Florida.

The industrial properties gained in value.

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U.S. may need another 1 billion square feet of warehouse space by 2025 as e-commerce booms

With more people clicking “buy” online, demand for industrial real estate could reach an additional 1 billion square feet by 2025, according to commercial real estate services firm JLL.

With online sales proliferating during the coronavirus pandemic, the U.S. is going to need more warehouses to store hoards of boxes and handle those orders.

Holed up at home, and with many bricks-and-mortar stores temporarily shut, shoppers have turned to their computers and smartphones to buy everything from fresh groceries to new home furnishings to pet toys. And even after the pandemic subsides, the trend of people buying more and more online is expected to stick around.

And so with more people clicking “buy” instead of venturing to the mall, demand for industrial real estate could reach an additional 1 billion square feet by 2025, according to a new report from JLL.

The commercial real estate services firm said that prior to the Covid-19 crisis, about 35% of its industrial leasing activity was related to e-commerce. But now, it said, as much as 50% of that leasing activity has already been tied to the online retail industry in 2020.

“The first quarter was our largest leasing quarter in three years,” said Craig Meyer, president of JLL’s Americas industrial division. “We’re seeing more pressure on [e-commerce companies] than the typical holiday season … to meet consumer demand.”

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How Will the Popularity of Online Grocery Deliveries Play Out for the Cold Storage Sector?

A surge in cold storage demand is expected to last. But exactly how it will play out is still an open question.

COVID-19 is impacting life in many unexpected ways, but it’s been a boon for U.S. online grocery sales.

“The interesting thing is COVID broke down the psychological barrier that had prevented many shoppers from buying groceries online, and in a post-COVID world this could transfer to cold storage demand,” notes Chicago-based Peter Kroner, research manager for industrial capital markets with real estate services firm JLL who recently helped his grandmother buy her groceries online for the first time.

With consumers now comfortable having groceries delivered direct to consumer (D2C) or buying online, pickup in store (BOPIS), disruption of the U.S. food industry is expected to stick. Kroner notes that three major U.S. retail grocery chains have already announced plans to launch free delivery of online sales by year-end. In addition, a Brick Meets Click/Shopper Kit survey found that 46 percent of shoppers plan to continue purchasing goods online, including groceries, post-COVID-19.

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Warehouse Giant Seeing Insatiable Demand from Amazon, Walmart

Prologis Inc. is seeing growing demand for warehouse space.

(Bloomberg)—Prologis Inc., the largest owner of warehouses in the U.S., is getting a boost as social-distancing pushes consumers deeper into the embrace of e-commerce.

Companies including Amazon.com Inc. and Walmart Inc. have an “almost insatiable” appetite for more warehouse space, Chief Executive Officer Hamid Moghadam said in an interview on Tuesday.

“We’re not seeing those guys slow down, they continue to be very active in making new deals,” Moghadam said. “The strong continue to be taking a lot of space.”

Prologis and Blackstone Group Inc. have gobbled up warehouses in recent years, betting in part that more and more shopping will move online. Still, e-commerce is a relatively a small piece of the warehouse business, which is more tightly tethered to the overall economy.

Even as the pandemic fuels job losses and batters the economy, the surge in online shopping, including for groceries, is keeping vacancy rates low at Prologis properties.

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Warehouse Giant Seeing Insatiable Demand from Amazon, Walmart

Prologis Inc. is seeing growing demand for warehouse space.

(Bloomberg)—Prologis Inc., the largest owner of warehouses in the U.S., is getting a boost as social-distancing pushes consumers deeper into the embrace of e-commerce.

Companies including Amazon.com Inc. and Walmart Inc. have an “almost insatiable” appetite for more warehouse space, Chief Executive Officer Hamid Moghadam said in an interview on Tuesday.

“We’re not seeing those guys slow down, they continue to be very active in making new deals,” Moghadam said. “The strong continue to be taking a lot of space.”

Prologis and Blackstone Group Inc. have gobbled up warehouses in recent years, betting in part that more and more shopping will move online. Still, e-commerce is a relatively a small piece of the warehouse business, which is more tightly tethered to the overall economy.

Even as the pandemic fuels job losses and batters the economy, the surge in online shopping, including for groceries, is keeping vacancy rates low at Prologis properties.

The company has grown rapidly through acquisitions, but Moghadam doesn’t see buying many opportunities amid the current turmoil.

“I don’t expect anywhere near the kind of opportunities that came in other cycles,” he said. “I don’t expect fire sales.”

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Is Marijuana Real Estate Pandemic-Proof?

A number of states deemed marijuana shops “essential” businesses and pot sales were up in recent weeks. Does that mean marijuana real estate is pandemic-proof?

While many bricks-and-mortar stores have temporarily shut down recently because they were deemed as “non-essential” in a time of a pandemic, the debate has not been settled when it comes to marijuana stores. For example, in California, Governor Gavin Newsom’s administration has designated marijuana businesses as “essential” because of pot’s health benefits, though that designation has come under criticism. Florida and Oklahoma have also designated marijuana stores as “essential.” Meanwhile, Massachusetts Governor Charlie Baker is facing pressure to allow the state’s marijuana businesses to re-open.

One thing that has been clear is that demand for marijuana has only shot up in recent weeks. A survey of 990 marijuana consumers conducted recently by online resource American Marijuana found that more than 48 percent stocked up on marijuana products amid the pandemic. Of those, more than half (55.39 percent) said they were stocking up specifically to calm themselves down. Another 23.03 percent said they feared pot might eventually become scarce.

Investors in marijuana real estate are trying to figure out how today’s altered landscape might impact their business.

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KKR’s Fast-Growing Warehouse Arm Lands $894 Million in New Debt

Alpha Industrial Properties secured a $690 million CMBS loan and a $204 facility from an affiliate of Invesco Ltd.

(Bloomberg)—KKR & Co. has refinanced its U.S. warehouse business, Alpha Industrial Properties, with $894 million in new debt.

KKR’s platform, which has made 40 acquisitions since May 2018, raised $690 million in commercial mortgage-backed securities in a transaction led by JPMorgan Chase & Co., according to Roger Morales, the firm’s head of commercial real estate acquisitions in the Americas. It also raised $204 million in a separate facility from an affiliate of Invesco Ltd.

“We have a lot of conviction in the sector’s drivers and expect to be significant investors in the asset class across a number of our real estate strategies,” Morales said in an interview.

Warehouses have become a hot asset as consumers increasingly embrace the convenience of e-commerce. Real estate-focused private equity funds have been vying with the largest real estate investment trusts for large portfolios of the properties.

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The U.S. Warehouse Sector Won’t Be Able to Escape the Impact from Coronavirus Outbreak

Phoenix reports highest year-over-year gains in December

U.S. home prices increased 3.8% in December from a year earlier, a faster pace than the prior month’s 3.5%, according to S&P CoreLogic Case-Shiller National Home Price Index.

Measuring the nation’s largest urban areas, the 20-City composite index rose 2.9% in December from a year ago, faster than November’s 2.5% pace, according to the report issued on Tuesday.

Craig Lazzara, managing director and global head of index investment strategy at S&P Dow Jones Indices, said the housing market continued its trend of stable growth in December.

“At the national level, home prices are 59% above the trough reached in February 2012, and 15% above their pre-financial crisis peak,” Lazzara said.

According to the index, Phoenix; Charlotte, North Carolina; and Tampa reported the highest year-over-year gains among all of the 20 cities.

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Highlights from Cushman & Wakefield’s North American Industrial Outlook

C&W expects the North American industrial market to remain one of the leading product types to watch.

Cushman & Wakefield recently published its 2020 North American Industrial Outlook report.

The brokarge firm forecasts North American industrial absorption in 2020-2021 will be a healthy 459.9 million sq. ft.

Industrial has arguably been the hottest commercial real estate sector in recent years. And signs point to that run continuing at least in the short term of the next two years.

Some highlights from C&W’s findings include:

  • Supply levels are projected to reach 573.4 million sq. ft. from 2020 to 2021. Nonetheless, vacancy will remain anchored around the 5 percent mark.
  • Asking rents are expected to increase by 6.8 percent and reach a new nominal high of $6.95 per sq. ft. by year-end 2021.

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