Where is the money coming from?
Though sales transaction volume in the U.S. have declined because of a lack of available inventory, foreign interest in industrial real estate continues to accelerate. A weakening global economy is making the United States a secure haven for foreign investment, particularly industrial real estate. Demand is robust across the continents with Norway, Canada, Singapore and the UAE leading the pack. Investor demand for U.S. assets are surpassing the previous cycle, especially for modern distribution facilities. Modern facilities are posting high occupancy rates and pre-recession level taking rents because of the consolidation and modernization of supply chains throughout the country brought on by the surge in demand from e-commerce.
TOP COUNTRY: NORWAY $5.4 BILLION
CROSS-BORDER TRANSACTION VOLUME (APR 15 – APR 16): $18.6 BILLION
Core markets are no longer the primary target of foreign capital demand. Many large portfolios sold during the past twelve months were concentrated in secondary/tertiary markets. One such sale was a 192 property, 60 million square foot portfolio purchase in December 2015. ADIA’s (UAE) joint venture purchase with PSP Investments (Canada) of Exeter’s portfolio closed for $3.1 Bil with buildings spread across secondary markets in the U.S.
Norges Bank Investment Management, the Norwegian Government Pension Fund manager burst onto the U.S. investment scene, partnering with Prologis to take over KTR’s 217 building portfolio for $5.4 Bil. This joint venture made Norway the top foreign investor for industrial product in the U.S. since April 2015. Demand from Canada remains strong. Dalfen America, a private equity firm based in Montreal, was one of Canada’s chief purchasers of industrial property in the U.S., taking 53 properties totaling $266 mil. Secondary markets were on Dalfen’s radar with a 23-building purchase in Ohio recently acquired from Hackman Capital.
MARKETS TO WATCH: PHOENIX, INDIANAPOLIS, SOUTH FLORIDA
With the global economy wavering and industrial real estate fundamentals thriving, cross-border capital will continue to flow into the U.S. Core markets will draw interest, but with little inventory available to purchase, foreign investors will grab up portfolios in secondary markets. Look for demand to be strongest in geographies near core markets including Indianapolis and Phoenix, along with east coast port markets including Virginia, South Carolina, and South Florida where demand will pick up from the Panama Canal expansion.
Thank you to James Breeze for sharing this blog to Colliers Knowledge Leader! James is the National Director of Industrial Research for Colliers International. Based in the Greater Los Angeles area, he prepares quarterly and specialized industrial research reports and interprets trends and data across the country.
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