Guest Column: Corporate Distribution Sales Continue to Drive Industrial Capital Markets
- Aug 22, 2014
Amazon is often in the spotlight today due to its rapid growth, strong dominance in the e-commerce world and the ripple effect it has on commercial real estate. As we look more closely at the industrial distribution market, however, there are millions of products that are bought, sold and moved through distribution facilities outside of the Amazon model.
This is creating opportunities for institutional investors who want to tap into the recovering industrial market—opportunities that are increasing with the improving economy and the recovery. Vacancy rates in various regions of the country are low, lease rates are competitive and leasing activity and sales continue to climb. These factors, combined with the prospects for stable rents from high-credit tenants, make corporate distribution facilities a solid option for many investors.
Sales of large corporate distribution facilities across the country have reached nearly $700 million since 2011, with some pushing post-recession pricing thresholds. This activity is shining a spotlight on this wide segment of the market that plays a vital role in moving everything from washing machines to plastic beverage cups to camping equipment.
Before there was Amazon, companies such as Whirlpool, Solo Cup and Coleman prospered by building or leasing strategically located corporate distribution centers across the country. While there is no disputing Amazon’s size and reach, the more traditional corporate industrial facilities—those involved in manufacturing and distribution—simply cannot be overlooked.
These facilities, which can range up to 1 million square feet, often were designed for a single tenant with a national or international distribution platform. The newer buildings have state-of-the-art features, such as 40-foot ceiling heights, expansive truck and trailer storage, super-flat floors and high-volume fire suppression systems.
One main difference between Amazon’s and these types of corporate facilities is that Amazon’s focus is on the distribution. Many other companies manufacture and/or assemble the products that they sell and distribute. While they may use Amazon as a means for distributing products, they manufacture on site and most often will have some type of distribution means within their facilities. Because of the models these businesses follow, they are a significant consumer of industrial space.
The appeal of these spaces as part of corporate campuses and warehouses/distribution centers is the financial/credit strength of the companies that occupy them.
The Dart Container/Solo Cup National Distribution Center, one of the largest corporate distribution facilities in the country, traded earlier this year, setting a new benchmark for pricing these types of assets. Based on the square footage, the transaction marks the largest corporate distribution space sale in Chicago since January of 2006 and among only a handful of similar sales across the country during that time period.
Such activity illustrates investors’ continued focus on core distribution facilities in major markets across the country. This is especially true in key markets such as New Jersey, Chicago and Los Angeles, which have a strong industrial base and play a significant role in the nation’s supply chain.
This momentum is also moving into some secondary markets, such as Indianapolis and Columbus, Ohio, because of their proximity to other markets, logistics fundamentals and pro-business state governments.
Erik Foster is an Avison Young principal & the practice leader of the firm’s national industrial capital markets team. Foster can be reached via e-mail at Erik.Foster@avisonyoung.com or phone 312.273.9486.