Trends in the Industrial Real Estate Sector to Watch in 2020
January 29, 2020
In an article by Tom Yeatts for S&P Global Market Intelligence, some interesting developments are on the horizon that participants in IMN’s 2020 Winter Forum held in Laguna Beach, California on January 22-24, were discussing.
One topic was the large share of the industrial market that is currently due to Amazon’s growth. According to Tyler Mattox of MCA Realty, quoted in the article, “Amazon alone accounted for 25% of the net absorption nationally in 2019, and ancillary businesses linked to the company likely accounted for another 10% to 15% of net absorption. If for any reason the e-commerce giant, a top tenant for many of the publicly traded industrial real estate investment trusts, moves to downsize significantly or reorient its supply chain, it could take the wind out of the market.”
Another concern is the rise in rents, having grown more than three-fold in some of MCA Realty’s markets over the last six or seven years, according to Mattox. “There is a glass ceiling at some point. … There will be an inflection point where you’re going to get a pushback from the smaller tenants in particular.”
James Freeman, principal at Cardinal Industrial, said in an interview that investors like The Blackstone Group Inc. are increasingly stalking secondary markets like Nashville, Tenn., and Charlotte, N.C., in search of yield. Deals that a few years ago attracted just two or four bidders now draw as many as 10, many of them massive institutional players, he said.
Another trend that over the longer term could impact the location of distribution centers is the development of autonomous vehicles, according to Freeman. Supply chains designed to accommodate strict performance regulations for human drivers will be redrawn, and there may not be as much of a need to have massive logistics boxes as close to population centers. Other market observers have shared similar concerns recently on the conference circuit.
“The radius probably grows,” Freeman said. “And maybe some of the [real estate] that was really valuable, because you’ve got to be within 500 miles to do a two-day delivery here, doesn’t matter as much.”
Blue Vault notes the commitment that Blackstone Real Estate Income Trust, a nontraded REIT that has grown to have an aggregate net asset value of $13.1 billion as of December 31, 2019, has made to investments in the industrial sector. As of January 2020, the REIT had an estimated 764 industrial properties in its portfolio, a count that represented over 70% of the REIT’s total number of properties.
Sources: S&P Global Market Intelligence, Blue Vault
