Now that we’re officially in Q2 2019, it’s a good time to refocus on forecasts and predictions for the year. Lately, we’ve been paying close attention to industrial. The ULI’s 2019 Emerging Trends report forecasted that industrial property types would top both investment and development prospects, outshining even the steadfast multifamily:
“At present, the risk of a downturn in the industrial space market appears slim. … Overall, the U.S. industrial real estate markets appear to be healthy and stable. It is the asset class that is potentially in the best position to weather any macroeconomic downturn that may come in the next several years.”
Low vacancy rates—down to a historically low 5.1% nationwide in 2018—signal high market demand from industrial tenants (currently driven largely by robust long-term dynamics in the e-commerce sector and retailers investing in “last-mile” logistics hubs). Low vacancy rates and rapid absorption as new industrial space comes on the market (via new development or re-development of existing assets) allow operators to command high rents—up 2.7% in 2018 vs. the year prior. This potential for strong operating income, coupled with the fact that industrial tenants tend to sign long-term leases, helps to justify the relatively high acquisition costs that characterize this property type.
NREI published an article earlier this month entitled HNW Investors Might Start Entering the Industrial Sector to Capitalize on Higher Returns. As they rightly point out, institutional-sized investors (e.g. banks, hedge funds, pensions, endowments, etc.) have historically had the most access and propensity to scoop up industrial assets in the United States—in fact, this is a big part of the reason that Industrial-type offerings are few and far between on the CrowdStreet Marketplace. However, they go on to say:
“There now appears to be more room for a different class of buyers in the industrial sector—high-net-worth (HNW) investors. Why? Because industrial opportunities in secondary and tertiary markets—where there is likely to be less competition from institutional investors with big pockets—have grown more attractive.”
Industrial-type offerings have comprised about 4.5% of all offerings on the CrowdStreet Marketplace to date. The same market dynamics that have historically reserved access to investment in industrial real estate for institutional players have also curtailed the level of deal flow we would like to see, and therefore opportunities remain relatively scarce.
We all know that diversification is a central tenet to good investing—in a private equity CRE portfolio, that means looking for a diversity of property types, geographies, In commercial real estate, the sponsor is an individual or company in charge of finding, acquiring and managing the real estate property on behalf of the partnership. The sponsor is usually expected to invest anywhere from 5-20% of the total required equity capital. They are then responsible for raising the remaining funds and acquiring and managing the investment property’s day-to-day... More experience, cash flow vs. appreciation plays, etc. Investors who seek to truly round out their portfolios across all property types need to seize the rarer opportunities as they arise.
Investors can use our filter feature to find industrial-type offerings on the CrowdStreet Marketplace.