November 15, 2019 Comments Off on The Economics of Industrial: Q&A with Realterm Logistics’ Rob Moriarty Views: 850 Houston-Galveston, National News, Southwest, Texas News

The Economics of Industrial: Q&A with Realterm Logistics’ Rob Moriarty

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Connect Industrial will take place on Tuesday, Nov. 19. Rob Moriarty, who heads up Acquisitions, Central Region, for Realterm Logistics, agreed to answer some questions from Connect Media, concerning where the industrial sector is now, some of the trends driving it, and his forecast.

Q. What are some of the trends and issues shaping the industrial sector?
A. Over the past five years, there has been record demand for industrial space accompanied by exceptionally strong rent growth. We think we are nearing the end of this cycle with respect to general warehouse demand, given a slowdown in economic growth. Net absorption and rent growth are now moderating from their recent strong levels. As for long-term trends, e-commerce is obviously the major trend we want to highlight here. Industrial demand is being fueled by retailers’ ability to keep more of their inventory in warehouse (space is cheaper than in stores), and by their prioritization of speed-to-market for consumer order fulfillment. We are still in the early stages of e-commerce penetration, and the U.S. actually lags the rest of the world so far.

Q. Speaking from the investment standpoint, what are buyers looking for when it comes to industrial assets?
A. Most investors are looking for infill locations and e-commerce tenants. There is more than enough capital for acquisitions, which is pouring into the sector from every investor type. As pricing continues to reach and surpass peak levels, it has become more challenging to find well-located assets with proximity to transportation infrastructure. New buyers are expanding their footprints and exposure within the industrial class, but many don’t seem to understand the utility of a property to the user. We think the most successful investors will be those that are truly focused on the needs of the underlying user base.

Q. What is your forecast for industrial product in 2020?
A. We think operational performance in the industrial sector will become much more differentiated as the economy slows. We expect rent growth for general warehouse space to slow to the 3%-5% range over the next year, and probably closer to 2% annual growth over the next five years. Demand for high-flow-through (“HFT”) assets will see almost no slowdown, as the underlying economic factors fueling its growth will remain in place. Moreover, limited supply growth will help landlords maintain an advantage in lease negotiation. Investment capital for all industrial property types will remain very strong. Industrial continues to be one of the only property types where demand remains exceptionally healthy, so there is little alternative. Meanwhile, interest rates are ticking back down, keeping leverage very cheap. The one thing I would tell investors is to be very careful going forward in making industrial investments – not all infill is created equal. A great location is not sufficient to drive investment performance because tenants need to be highly discriminating in creating utility.

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