Foreign Capital, Robust Demand Drive Industrial Growth: Jones Lang LaSalle
- Jul 25, 2012
Increased foreign investment in the United States industrial market is one of five factors spurring the sector’s resurgence this year, according to a study by Jones Lang LaSalle Inc. Other key drivers are high demand for a constrained supply, global supply chain trends, worldwide growth of e-commerce and solid infrastructure, the study contends.
“Compared with other product types, industrial properties are less capital intensive, have not historically experienced the highs and lows in rental rates and values and remain a stable and predictable asset class,” said Mike Fowler, a JLL executive vice president. “The evolution of global economics and the global supply chain are transforming the U.S. industrial real estate landscape, and attracting the attention of some major global players.”
A case in point: Jones Lang LaSalle recently acted as strategic advisor to the Goodman Group, an Australian commercial real estate investor and developer, in its $1.5 billion partnership with California-based Birtcher Development. The Goodman Birtcher partnership is focusing on developing and acquiring premier industrial and logistics properties in North America, primarily in Southern California’s Inland Empire, the San Francisco Bay area, Central Pennsylvania, New York and Northern New Jersey.
Goodman isn’t the only overseas investor in the U.S. industrial sector making news lately. Last week, Brennan Investment Group L.L.C. and London-based Gatehouse Bank plc announced they had formed a joint venture to purchase a 20-property industrial portfolio for $155 million from an affiliate of AIC Ventures.
Tim O’Rourke, an executive vice president at Jones Lang LaSalle, said he expects to see more interest from foreign and U.S. investors as confidence grows in the industrial sector. Part of that stems from increasing demand for industrial properties, particularly in key logistics hubs.
Referring to the Goodman Birtcher joint venture, O’Rourke said, “With favorable market conditions, increasing demand and a lack of large facilities in A+ locations, the time was right for Goodman Group to move into the U.S. industrial real estate market.”
Goodman Birtcher is looking at development because demand has been steadily increasing even as much of the high-quality space in nation’s major industrial hubs has been absorbed. Demand from online retailers has been growing since 2009, and that trend is expected to continue as more companies increase online logistics operations rather than open traditional stores.
“Our focus on distribution hubs such as Southern California and Central Pennsylvania is in a large part driven by the demand in this sector,” Shannon Hondl, chief development officer for Goodman Birtcher, said of e-commerce space needs.
Other hubs expected to grow in the United States are those near the Panama Canal, which is undergoing expansion to handle larger ships, and inland ports that are connected to major seaports by rail.
“With pressure mounting on our nation’s seaports and high demand for port warehouse space, moving goods directly by rail to inland ports becomes increasingly attractive,” said Rich Thompson, managing director of Jones Lang LaSalle’s supply chain and logistics solutions consulting practice. “The growing utilization of intermodal transportation will help companies reduce costs and create new opportunities for developers and investors in the industrial real estate sector.”
Cassidy Turley is reporting that the second quarter statistics are showing a continuation of “a robust uptrend that began in 2011.” The firm’s second-quarter report on national industrial trends states that net demand for warehouse space rose to 19.8 percent from 19.1 percent in the first quarter.
It notes that businesses have leased 139 million square feet of additional space over the last 18 months. Cassidy Turley also reports that 7.1 million square feet of new space came online in the second quarter, up from 3.8 million square feet in the first quarter. A total of 32.6 million square feet of space was under construction as of the end of the second quarter, up from 26.3 million square feet in Q1.
The firm reported that sales of industrial properties totaled $10.3 billion for the first half of the year, up 13 percent from the same period in 2011. Sales of flex industrial properties showed the biggest increase—38 percent.