Solid market indicators point to 2016 being a strong year for industrial real estate, says JLL

Keeping in line with multiple growth drivers predicated by things like ongoing gains in e-commerce, the pending Panama Canal expansion in early next year, and foreign investment into U.S.-based industrial real estate, recent research from industrial real estate firmJLLsuggests that 2016 could shape up to be a year of very high demand for United States industrial development, especially for distribution and fulfillment centers.

And that would be coming off of what was a very strong 2015, a year that saw U.S. industrial property and sales rates eclipse historical peak values last reached in 2007 and 2008.

JLL President, Industrial Brokerage, JLL Americas Craig Meyer, said in an interview that the positive outlook is based on a couple of long-term trends.

“On the real estate supply or absorption side of it, there has been 23 consecutive quarters of positive absorption that has been part of a slow-growing recovery,” he said. “And on the industrial side we are overbuilt on our vacancy rates and are as big as some other property sectors, with the development cycle this time being relatively moderated.”

The moderation, he explained, is driven by: the proliferation of more institutional owners that took losses in the last cycle and tend to be more conservative now; and the size of investments going into industrial development.

“An underlying driver that has been unique to industrial real estate is that supply chains have been reset with the advent of e-commerce and entirely new channels of distribution like direct to customer,” he said. “That whole revolution was very quiet, and most people in the real estate world don’t see that so what happened is that we are bigger buildings now.”

How big are those buildings? According to Meyer that range falls between 500,000 to 2 million square-feet.

Putting the financial value of these buildings into perspective, Meyer said a 1 million square-foot building has a minimum investment of $50-$75 million.

和关于“静悄悄的革命”发生on the demand side over the last seven or eight years, Meyer said the first wave was the beginning of outsourcing in the form of increased building offshore in places like China for new industrial gateways. In the last five to seven years, though, it has been a shift to e-commerce, which changed the model to having big and large fulfillment centers adjacent to population centers, where product was staged and could get there within a two-day delivery period which was a service component of that.

“We are now in the middle of this second wave of this evolution in dealing with same day and are beginning to see [more] facilities deeper into population centers with urban logistics, which has been the name of the game,” he explained. “There is a constant tidal change pressing to get things faster and quicker right to the customer’s door. We are going to continue to grow for the time being in this space due to good constant consumer and subsequently customer demand from the owners or occupiers of our buildings [3PL’s, retailers, and distributors, among others]. Around 75 percent, or more, of our entire demand today is based around movement of goods in some way or another. It could a 3PL doing it for a retailer, Amazon, FedEx, UPS and many other parties.”

Offshore investing: JLL’s research also highlighted the ongoing emergence of global investment into industrial real estate, explaining that “offshore capital has been the biggest participant in 2015’s race for U.S. industrial property” and represents more than $11.5 billion in total investment through the third quarter of this year.

Two recent examples of offshore investment cited by JLL include the $4.55 billion portfolio acquisition of Industrial Income Trust by Global Logistics Properties earlier this year along with its 2014 acquisition of IndCor for $8.1 billion. JLL said these deals are examples of how industrial real estate ownership is being consolidated into the hands of increasingly fewer buyers, with many buyers being non-U.S. entitities.

“This [activity] is about the maturity of the asset class and during this cycle there was the emergence of aggregators, with large global players accumulating portfolios in the 50 million-to-100 million square-foot range,” said Meyer. “This has been attractive to offshore investors investing large chunks of money. Before this, offshore capital had a much more difficult time and was buying one asset here and one asset there.

Panama Canal: With the much-anticipated Panama Canal expansion nearly complete, JLL said that it will continue to influence long-term dynamics in supply chain dynamics, coupled with heavy infrastructure investments by ports, especially with East Coast ports-with connectivity to major metropolitan population hubs-that JLL said expect to benefit the most from the Canal’s expansion in the next decade.

“This is a long-term game changer and one of the largest public works projects in the world,” said Meyer. “And during this last cycle there has already been a shift in market share from West to East coast ports to a degree, with up to 10-15 percent of that traffic shifting to the East. It is growing and will result in a long term shift over time, with extra lead times for transit, which will be good for seasonal buying. Ships going through the Canal will carry three times as much cargo, and we think that is a trend that is going to continue.”