The News: Industrial Returns Stand Best Shot

Although the sector’s returns fell considerably below their historic levels during 2008, industrial properties continued to outperform other major commercial real estate categories, RREEF Research concluded in a recently updated report. However, the sector will have to wait until 2010 for an upswing in growth, given a global economy that has weakened considerably during the past year.RREEF, an affiliate of the Deutsche Bank Group, presented its outlook in a revised version of a February 2008 report on commercial real estate investment. Highlighting changes that have affected the industrial sector over the past year, RREEF analysts updated statistics and commentary in the report’s margins.The industrial sector managed returns ranging between 1 and 3 percent last year—lower than the sector’s 10.7 percent historic average but still enough to lead the apartment, office and retail sectors. On the whole, industrial supply remains balanced, according to RREEF’s updated assessment. However, “slowing Asian economies (and) negative business spending will impair (the) demand side.” Nationwide, 160 million square feet of new supply came online last year, outstripping the 66 million square feet of net absorption by a considerable margin. That trend contributed to an increase in the national industrial vacancy rate from 9.4 percent to 11.1 percent by the end of the year.A year ago, RREEF reported that a trend driving industrial development, demand for increasingly large floor plates in distribution facilities, was winding down. “Now this segment is in distress,” the update confirmed. IT and biotechnology benefited hubs like San Jose, Austin, Seattle, Boston and Washington, D.C., during the first half of the year, but that help began to fade along with the global economy during the third quarter of 2008.Looking past the current crisis, RREEF’s analysts stood by their upbeat long-term projections for the major ports it mentioned in February 2008. Southern California, the San Francisco Bay Area, Seattle, Greater New York City and South Florida are the most desired points of entry from Asia, Europe and the Americas. RREEF also cited Atlanta, Houston, Charlotte and Chicago as attractive alternatives to busy West Coast ports. That trend, in turn, has come about primarily thanks to the emergence of several ports as East Coast entry points from Asia: Savannah, Ga.; Norfolk, Va.; Charleston, S.C.; Houston.