Industrial warehouse demand set to take off

Lenders should pay attention to the growing demand for industrial warehouse space, an economist has said

Lenders should pay attention to the growing demand for industrial warehouse space, an economist has said.
 
The demand for industrial warehouse space and modern distribution centers in the U.S. will continue to grow, although lenders must be aware of the specific pattern dictating growth, Colliers’ U.S. Chief Economist KC Conway told MPA. 
 
“There is another commercial real estate asset in the space that is now really healthy – industrial,” Conway said.  “Everybody herded into multifamily and is now anxious that it is overplayed. If they’re scrambling, industrial is now another attractive space in a long four or five year recovery.”
 
Over the last two years, Conway likens the North American industrial warehouse markets to baseball, saying the markets have pitched a “perfect game” through the eighth inning. The property type has seen eight successive quarters of declining vacancy rates, with net absorption outpacing new supply more than 2:1.
 
Conway said the U.S. is seeing growth for several specific reasons.
 
#pb#Lenders need to understand what is driving this improvement in industrial and that finding the comps to justify newer higher prices and lower cap rates will be tough, he said. Cap rates continue to compress and warehouse prices rise due to increasing investor demand for warehouses.
 
“Anytime an asset type recovers, appraisers are slow to recognize the improvement and have transactions to justify the recovering higher prices.”
 
Not only has there been a manufacturing renaissance in the U.S., but the supply chain is also changing radically in response to the expansion of the Panama Canal, which will allow larger ships to pass through to ports on the Gulf and East Coast. Growth in e-commerce will also effect just where industrial building will take off, Conway said.
 
The first 10 years post Panama Canal Expansion in 2015 will be very different than the last 30 to 50 years, which have been LA, Long Beach and Inland Empire of California concentric. 
 
Connecting “Post Panamax” ports – ports like Norfolk and Baltimore that can already receive these new larger container ships and those like Savannah, Miami and New York who are expanding – with modern intermodal facilities and e-commerce centers in Memphis and Kentucky is the new supply chain, and not so much LA to Chicago.  
 
“Those that get it will lend in the right places, and those that don’t will have a portfolio of underperforming industrial loans,” Conway said.
 
It is key for lenders to understand all this if they are going to get back into the industrial lending space, Conway said, because it is night and day different from before the 2007 recession.