Industrial real estate in high-demand markets that serve as strong centers for the delivery of goods should remain a strong sector for quite some time. In high-demand, high-barrier markets, such as Inland Empire, Bay Area and Newark/northern New Jersey in particular, demand is very strong and it is difficult to build or buy them. So these markets, in particular, should remain strong. Industrial is one of the most underserved sectors in the U.S., and demand should grow with the population and continuing shift to internet retailing. I also think there is more opportunity in development of these facilities if you can find entitled land in the high-demand markets mentioned above, but that is not easy. Returns in those markets on newly built, well-located facilities should be strong for years to come.
How much longer will industrial last-mile real estate provide value?
Clearly the explosion of e-commerce created a high demand for last-mile space. Has this demand peaked or is this a trend that will continue for a number of years? Are there certain markets that are more saturated than others? Would ground-up construction or acquisition be a better play?
This is a very broad question. I will answer what I can. There is still a great deal of money being invested in industrial. The major players are continuing to acquire completed buildings to lease. As far as I can tell, the buildings are vacant on delivery and then lease-up begins. I don't know how long it will take to lease up the buildings, but there seem to be letters of intent for many. The question is whether the smaller providers will fare as well as the major players. As far as markets, the usual suspects continue to be in play. There is some shifting to lower-tax states. Construction is usually a higher risk, potentially higher return game. For my money, I would look to make an arrangement with a major player to take delivery of the asset and take a share of returns. As always, my answers reflect only my views. Where I represent clients as an advisor, I put in the legwork to check markets as well as my theories.
We believe the trend for industrial assets and development will continue for some time. We always prefer acquisitions rather than ground-up development within this sector, simply due to mitigation of construction risk. Furthermore, with acquisitions, you have a better understanding of the historical performance. Of course, the price always is higher.