Future in Industrials

Just wanted to hear any thoughts on the current state and expected trajectory of the industrial sector.  I keep seeing papers on the expected growth due to revamping supply chains, e-commerce growth, etc etc. and also the larger firms gobbling up massive chunks of assets at a time, not to mention it looks like developers have newly pivoted out a group focused on industrial projects.

I'm not involved in that sector, but is it getting extremely crowded or competitive in that asset class?  And do you see there being a legitimate and supported growth in this sector over the next 3-5 years? Or greater? 

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Apr 26, 2021 - 10:24am

I'm no expert but I'll add my 2 cents.   I'm in an acquisitions role at an Owner/Operator in the midwest solely focused on industrial.  

Overall like with the rest of the RE space, industrial has gotten more institutionalized.   Large allocators are now putting a lot more money to work in industrial than previously and the debt markets look at it a lot more favorably than they used to.  

It is a race to the bottom on cap rates, for example, Class B product in Charlotte is now being priced at where Class A was a year or two ago.  We built a spec building last year and leased it to Amazon, we've gotten offers we would have never dreamed of in our market (secondary/tertiary).   Same story with our better product in Kentucky and North Carolina.  So yes, it feels like its getting extremely crowded on the buyside.  Nowadays we can't seem to get competitive on the Class B stabilized that has been our bread and butter for the past few years.   

In terms of forward growth, Amazon continues to expand at a crazy rate but I think some of that will slow going forward.  Covid pulled forward a lot of the e-commerce demand, so if we said the 5 Year Growth rate was expected to be 50%, we might have experienced  30-35% of that in the last year alone.   Supply chain reinforcement will continue to be a tailwind but I think that's harder to pinpoint.   Some of the niches like cold storage will continue to expand due to online grocery but it will hard for firms who don't operate in the space to get a good foothold.  A lot of our bigger tenants are complaining about labor availability so that may point to expansion in some markets with more loose labor supply.   Long term is still  bullish: e-commerce still remains a fraction of overall retail sales and global trade volumes will only continue to increase.  

I think any of the "easy money" has been made, mostly by existing owners.  Smart developers avoiding oversupplied markets and buyside firms that can get their hands dirty will continue to do well.  

Apr 26, 2021 - 3:20pm

This is all interesting, especially regarding the secondary & tertiary markets. You mentioned spec development, is that space becoming crowded as well?  I imagine land brokers are having more and more conversations with developers looking to do spec development witH these tailwinds. From what you've seen is that also becoming crowded?

Also never thought about labor availability.... that is very interesting. 

Apr 27, 2021 - 10:53am

Spec development varies significantly by market, some parts of Texas are likely getting overbuilt but other areas in the US still have room to absorb.   So hard to say if its overcrowded in general, but there has definitely been a pickup in industrial development activity but we won't know the saturation point until we've passed it.  

If you have a specific market in mind look at some of the market reports the big brokerage houses publish to see where absorption vs new construction, vacancy, and rent growth are trending.   They won't give you all the answers but at least you'll have some level awareness of overall supply-demand dynamics.  

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