NAI Global Logistics and Industrial Real Estate Trends and Outlook

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NEW YORK, NY/ACCESSWIRE/August 2, 2022/ Each month, more than 20 of NAI Global’s top industrial real estate and logistics experts participate in a conference call hosted by Steve Pastor with NAI James E. Hanson in Teterboro, New Jersey. Pasteur chairs the NAI Global Industry Council. The group discusses trends in their respective markets, activity (developers and tenants), rental rates and investment cap rates and related factors impacting the logistics industry in the United States.

NAI Global, Monday, August 1, 2022, Image from press release

Photo: Gary Marais

Here are some of the highlights from the June and July virtual conferences.

Industrial investment sales get jittery as ‘retrading’ activity becomes pervasive. Retrading is a phrase that describes sellers or buyers of property (normally the last ones) changing the terms of a transaction – usually the proposed sale price of a property, once the due diligence phase of a transaction begin. Retrading most often occurs if a physical condition of a property is discovered, such as a leaky roof, to use an extreme example. Lately, however, 100% of the retrading activity shared by brokers NAI Global on the July logistics conference call is driven by buyers reacting to rising interest rates and increased risk to buy stocks. industrial assets. For example, if the initial yield, or capitalization rate, based on the originally agreed price is around 5% or 5.5%, the increase in the cost of debt expected for the acquisition places the rate of return/ risk in the 6% to 7%. + range. Thus, buyers return to the sellers of these properties and seek price reductions. In one instance, a buyer had to reconsider a planned purchase (of a property) because their stock price was falling as interest rates rose and as a result the cap rate will drop from 4.7% to something higher, but the deal is still moving forward.

A broker said institutional investors were suspending everything for 5-6 weeks to see how interest rates would develop.

According to some of the broker comments, there are benefits to some retrading activity, and that’s for sales that are dropped during the due diligence period – and most often institutional investors, it allows local investors and generally smaller regional (which have been “boxed out”) the opportunity to buy in what has been one of the most competitive environments in history for industrial property sales. (Sources: Meyer/New Jersey; Licht/New Jersey; Chambers/Atlanta; Black/Nashville; Pastor/New Jersey; Roth/Chicago; Armon/Reno)

Rent growth continues to be one of the main stories with industrial real estate. Walgreens signed a lease in the Orange County, NY market for $11 per square foot (psf) and most landlords are now asking for $12 psf. Just two years ago, typical asking rates for newly constructed industrial buildings were $7-8 per square foot. One broker said the rate hikes have been so aggressive that brokers are blamed for market conditions and even described the perception that “we are the enemy.” In a painful example for a tenant, the company had paid approximately $4.5 per square foot for a property and renewed at $6.50 per foot with annual increases of 4%. This is an increase of more than 30% between an existing lease and the company’s new lease, thus adding an operational expense that will have to be passed on to customers, reduce the company’s profits or combination of the two. In another example, a tenant in a multi-storey, multi-tenant building is currently paying 3.75 NNN and their rate will double when due. The tenant is unhappy with the buyer of the new building, the broker and the market. Moreover, the growth in rents encourages landlords to conclude shorter leases, as the financial markets discount offers associated with longer-term leases (5 versus 10 years). This is first contrary, as normally investors like to buy real estate assets with long term leases in place, for stability and predictable income. However, with rates rising so rapidly, investors fear that a rate locked in now for 10 years could leave money on the table, or revenue, for the second half if a 10-year deal were structured. Therefore, a recently completed 50,000 square foot lease in the Allentown PA market was for five years, according to the landlord. Sources: Culberson/Albany; Licht/New Jersey; Caronna/Baltimore; Adams/Allentown)

Retailers enter new markets and/or serve existing customers with warehouses instead of stores. In Oklahoma City, grocer The Kroger Co. (NYSE: KR) has a new 50,000-square-foot warehouse and e-commerce facility under construction with plans to offer food delivery services in the Oklahoma region. way “America’s Largest Grocery Retailer” expanded to Florida in 2021. The new facility is a hub-and-spoke model with primary service out of the Dallas hub market. According to a company press release, the new “Oklahoma facility will serve as an alternate geography for the company, bringing innovation and e-commerce to the region, expanding the grocer’s reach and ability to supply its customers anything, anytime, anywhere”. (Source: Everett/Oklahoma City)

Delawarewhich only has a total industrial inventory of about 32 million square feet statewideis often a lower cost alternative in the I-95 corridor for warehouse/distribution occupants compared to southern New Jersey and southeastern Pennsylvania. In several municipalities there are several new industrial development projects in the planning stage at the local land use level ranging from 127,500 to 1,420,000 square feet and for another good reason – the industrial vacancy rate in Delaware is less than 1%. (Source: Hickey/Delaware)

A Relocation example was shared, with New Jersey-based Greenland Technologies Holding Co., which brought part of its manufacturing business back to China to manufacture electric forklifts and excavators in a new 54,000 square foot factory that the company built in East Baltimore County. (Source: Caronna/Baltimore)

Driven by greater mobility and moving/relocation activity, as well as working from home during the pandemic, demand for self-storage facilities in the United States has soared throughout 2021 and 2022. As such, Self Storage developers and operators continue to scour the United States to find suitable new sites and facilities, and research has brought them to tertiary markets, among others, in northern Indiana. In the South Bend and Elkhart areas of the state, older-generation industrial buildings with 24-foot clear height ceilings that are offered for sale have several offers from developers and self-storage operators in the days following registration. In most cases, developers try to keep the building envelope and, if they can, add elements to it. They also use the outlying areas of these industrial properties to rent outdoor storage space. Over the past few months, 8 industrial buildings have been sold to Self Storage developers in this submarket alone. (Source: Davey/Northern Indiana)

The demand is so huge for industrial stocks that an incredible 61 million square feet is being developed in Dallas/Ft. Worth (45.5 million square feet has poured slabs and another 15.7 million is in progress with earthworks, while 22% of that combined total is pre-leased); 35 million square feet are in a development and construction phase in Atlanta, and there is 14 million square feet of potential development in Reno, which equates to approximately 15% of the current inventory in that market right now . There are 3.7 million square feet currently under construction in Reno. And tenant activity remains strong for three 1 million square foot buildings for lease in the Port of Houston market. (Sources: Chambers/Atlanta; Stanzel/Dallas; Simon/Houston, Armon/Reno)

Supply chain disruptions and material shortages are impacting industrial development projects and driving up construction costs. Materials include roofing materials and asphalt. Several of the attendees cited builders scrambling to complete their projects with the roof as the biggest challenge. In the Baltimore area, roofing is up 85% year over year, and the cost of paving an acre of land for outdoor storage (with asphalt) has gone from just over from $100,000 a year ago to over $200,000 now.

In Georgia, there is a shortage of concrete. In Atlanta, there is a shortage of aggregate for concrete mix but no sand, while in Savannah, which also has sand but no aggregate, the state governor has reached an agreement with the Nova Scotia to ship aggregates to the city, so work to expand the Port of Savannah can continue.

A Columbus, OH developer ordered switchgear for one of his projects last September and the equipment won’t arrive until September. Switchgears are one of the most common pieces of equipment on industrial, commercial and residential sites as they function to protect electrical connections and (primarily) intended to isolate electrical circuits.

Shortages of materials and equipment are encouraging institutional developers to start stockpiling essential building materials (according to multiple sources in the call). (Sources: Royce/Tyson, Virginia; Caronna/Baltimore; Chambers/Atlanta; Osowski/Columbus)

About NAI Global

NAI Global is one of the world’s leading commercial real estate brokerage firms. NAI Global offices are leaders in their local markets and work in unison to provide clients with exceptional solutions to their commercial real estate needs. NAI Global has more than 300 strategically located offices in North America, Latin America, Europe, Africa and Asia-Pacific, with more than 5,100 local market professionals, managing more than 1.1 billion square feet of properties and facilities. Each year, NAI Global conducts over $20 billion in commercial real estate transactions worldwide. NAI Global offers a full range of corporate and institutional real estate services, including brokerage and leasing, property and facility management, real estate investment and capital market services, due diligence, chain global sourcing and logistics consulting and related consulting services. To learn more, visit www.naiglobal.com.

Press contacts:

Gary Marsh, Marsh Marketing 415.999.3793 or [email protected]

Lindsay Fierro, NAI Global 212.405.2474 or [email protected]

THE SOURCE: Global NAI

See the source version on accesswire.com:
https://www.accesswire.com/710493/Logistics-and-Industrial-Real-Estate-Trends-and-Insights-from-NAI-Global

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