Tag Archive for: data centers

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It’s rare for a property type to extend a growth cycle beyond a decade. But industrial real estate’s dominance only seems to grow — attracting newcomers while big players scrap for the materials and land they need to keep their projects moving and potential clients happy.

While longtime powerhouses like Prologis and Panattoni plow forward with their own mammoth projects — and Amazon admits that it has too much industrial space on its hands — other companies are making their debut, hoping to seize on some of the continued demand and expanding yields.

Although the industrial market has been on an expansion trajectory for years, there seems to be plenty of room for newcomers.

“It’s no secret why industrial is doing so well, with the e-commerce boom really accelerated by what’s happened in the last couple of years with the pandemic,” said Scannell Properties Director of Development in Southern California Jay Tanjuan. “People were almost forced to order online, and many realized how convenient it was. E-commerce has huge demand, and so there’s the need for warehouse.”

There seems to be widespread consensus that the industrial heyday is far from over.

“We’re in an ongoing industrial real estate boom. We had been in an above-average growth phase pre-pandemic and obviously, the pandemic accelerated that. Post-pandemic, it continues to grow,” said RBC Capital Markets Director Michael Carroll, an analyst who covers Prologis and other REITs. “I don’t think we’re at the end of it, it’s still ongoing.”

Carroll pointed to the nationwide vacancy rate for industrial space — 3.3% in the first quarter, according to Cushman & Wakefield, with lease rates up 15.2% on average compared to a year ago — and a rapid pace of leasing that means new spec development is snapped up as soon as it’s finished, if not before.

Among the industrial newcomers is Peterson Cos., the Virginia-based developer of residential communities, huge retail districts and data centers. Peterson took the plunge into industrial development last year, and has two projects totaling 334 acres underway in the Washington, D.C., area, with another 915 acres in the planning stages, according to Peterson President of Development Taylor Chess.

“We started looking at industrial eight to 10 years ago, seeing that as the wave of the future,” Chess told Bisnow. “We felt as though distribution was going to become a much more integral part of the retail market. But we kept getting beaten out by people buying land for data centers, so we pivoted to data centers.”

Now, as the company’s initial prediction proved out, hastened along by the pandemic, Peterson doubled down on its efforts, launching an industrial arm in earnest to capitalize on the staggering demand.

 

“There’s no question that internet sales and distribution were going to become a key industry eight years ago, and that’s why we started teeing it up. We had no idea it was going to accelerate as fast as it did,” Chess said.

Peterson’s not alone. Nationwide companies that have operated successfully for decades in other property types are also diversifying their efforts by turning to industrial.

South Carolina-based Greystar, for example, is a bastion of multifamily development and management, with thousands of units in major markets across the country. But Greystar in March paid $43.7M for 154 acres near the Phoenix airport, setting up the company’s first large-scale industrial project. Greystar got a leg up on its foray into a new product type by purchasing a parcel with plans that were already approved by the local planning authority. Greystar will work with a development team assembled by the former owner of the land, a Phoenix-based company called Unbound Development, according to a press release announcing the deal.

Similarly, private equity giant KKR & Co. earlier this month announced a dramatic push into industrial development, with plans to build 1.8M SF worth of mid-sized warehouses in last-mile distribution locations in Atlanta, Dallas, Denver, and Orlando, Florida.

And Tishman Speyer, known for its office buildings, hired Andy Burke, formerly of industrial developer Terreno Realty Corp., as its managing director to oversee industrial acquisitions and development. Tishman Speyer in December 2021 announced that it acquired two middle-mile distribution centers in Colorado and Pennsylvania.

Each of these new entrants to the industrial market appears to have a focus on last-mile distribution, which is basically the white whale of industrial development right now, according to Carroll, thanks to its demand paired with a lack of available land.

“Companies are trying to build industrial warehouses close to consumers because it reduces shipping costs and labor costs,” Carroll said. “It’s important to be as close to consumers as you can, but most cities don’t want industrial warehouses because they want the highest value for their tax base and the least traffic. It’s hard to build industrial warehouses where they actually need to be.”

The lack of available land is something about which Chess at Peterson knows a lot.

“This has never been an industrial market, it’s always been a government market,” Chess said of his company’s target market around the nation’s capital. “Zoning is a challenge, as well as finding large tracts of land. Many other areas have large industrial sections of their metro area that have already been designated or are being redeveloped from manufacturing. D.C. doesn’t have that, so finding the right location has been a challenge.”

Land availability is just one of the challenges for any company trying to develop industrial properties right now. Shipping delays and turbulence in markets and foreign countries continue driving up the cost of materials, and labor is difficult to find in most markets. This doesn’t just make buildings cost more, it impacts a key factor for potential industrial tenants: speed to market.

“The biggest issue with leasing is that when tenants enter the market, they want it now. That is the biggest issue. The tenants are there, but we have to finish building to be able to put them in. That’s why going spec is so important,” Chess said.

With so much competition for land, materials and labor, the addition of new players to the marketplace could be considered a negative for existing companies that are already battling to get what they need.  But Tanjuan says that for those who are committed to the product type, there’s a way forward.

“There are opportunities out there for everybody,” Tanjuan said. “It’s competitive, and finding space is extremely difficult, but there are opportunities out there. If you’re out there and being proactive, you’re going to run into something.”

 

Source: Bisnow

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A key component of a successful real estate investment is choosing the right asset class to invest in within the given market.

Supply and demand is constantly changing, meaning what was a lucrative investment one, two, or 10 years ago may not be worthwhile today. See what types of real estate are in high demand right now and how investors can participate in the growing market.

Before we dive into where opportunity lies, note that just because there’s a general demand for these types of real estate doesn’t mean there’s opportunity for them in every market. Real estate is a very localized business that operates on a macro and micro level. For active investors, it’s important to identify what opportunities lie in your local market or participate in a more diversified investment portfolio specializing in these asset classes through a real estate investment trust (REIT).

1. Cold Storage

Cold storage is a type of industrial real estate responsible for the storage and transportation of cold goods, including food products. The global pandemic interrupted the food supply chain, making consumers and large grocery retailers adapt to the shift in consumer preferences for online grocery sales as well as the need for more cold storage as a whole.

This specialized niche has several barriers for entry, making it a difficult asset class to invest in outside of Americold Realty Trust (NYSE: COLD). Americold is the only industrial REIT specializing in cold storage, owning more than 1 billion cubic feet of cold storage space. The company is well positioned financially to grow with the increased demand.

2. Data Centers

We are undoubtedly in the age of technology, with more people and products becoming reliant on the efficiency, ease, and convenience of technology. Data centers are responsible for safely storing and computing data for the government, large corporations, cloud companies, and even data used from phones.

Demand for data centers has been on the rise over the past decade, but COVID-19-related work-from-home orders have put even more pressure on this growing sector. While demand as a whole is up, certain markets are leading the sector, including northern Virginia and Atlanta.

Data centers are another unique sector to invest in with large barriers for entry, making any of the top data center REITs a wonderful way to participate in this industry.

3. Residential Housing, With Emphasis On Affordable Housing

A study conducted by Freddie Mac found that the U.S. is short 2.5 million to 3.3 million housing units in 29 states, with states like Oregon, California, Texas, Minnesota, Florida, and Colorado the leaders in the housing shortage. These states, among others, are also home to some top-tier markets, where housing prices far outpace wages for the area, putting affordable housing in serious demand.

This means multifamily properties, single-family homes, and new construction can potentially be good investments in the right markets. This asset class is the easiest point of entry for investors, with dozens of options available to participate in actively, like fix-and-flip or rental properties, or passively through residential REITs.

However, it’s important to note that with current eviction moratoriums and a record number of tenants being unable to pay rent, the rental industry is facing tough times, making this a volatile market to participate in right now as a smaller investor. However, this industry is fairly resilient, and while it’s currently facing unique challenges, this market clearly has long-term demand and should bounce back in time.

 

Source: The Motley Fool