Industrial prices could set to increase as a result of increased activity and rents during the pandemic.
According to a recent survey from RCM/LightBox, industrial players expect rents to increase from 4% to 7%. The asset class has already proven to be resilient during the worst months of the pandemic. As a result, many investors have flocked to the asset class.
“Experts in the industry—brokers, investors and developers—shared with us their expectations that by the end of the year we’d see pricing and rents increasing from 4-7 percent. Those expectations were expressed for many primary and a number of secondary markets, in key population areas, across the country,” Tina Lichens, SVP of broker operations at LightBox, tells GlobeSt.com.
Not all industrial assets are created equal. Manufacturing, for example, has not performed well during the pandemic. Investors as focused on ecommerce-related uses, pharmaceutical-related uses and any industrial supporting essential uses.
“Among the industrial properties to watch are those tied to consumer goods, pharmaceuticals, and other essential services, along with last mile facilities that support growing population bases with quick delivery options,” says Lichens. “Not to be overlooked are mission critical facilities, such as data centers and corporate food products facilities. Data centers, for example, have become increasingly important because so many people are working from home.”
Manufacturing and outdated industrial—which could pose a higher risk in a down market—are the least popular.
“Those subcategories that face the greatest exposure could be older, obsolete facilities along with smaller multi-tenant facilities, particularly those not in strong and established metro corridors,” says Lichens. “Given some of the uncertainties that exist in the overall economy, particularly for small businesses, it may be difficult to underwrite the acquisition of these facilities without predictable cash flow.”
The increased demand for ecommerce and the expectation of increased pricing has created enthusiasm for the asset class, but Lichens says that there is no reason to think that investors are being overly positive.
“Various reports point to growing consumer demand for online shopping and significant increases in store and online activity from Target, Walmart and others. Even before the pandemic, the experts pointed to the increase in ecommerce activity as reason to be bullish on the industrial market,” Lichens says. “The pandemic has truly emphasized our reliance on ecommerce and caused certain areas to experience tremendous growth. With more people in the U.S. accustom to and now embracing ecommerce, it has become a new way of life that has changed our entire consumer culture. It is difficult to envision a shift in the other direction.”