U.S. Industrial Property Investment Enjoys Best Year Since 2007

By Michael Gerrity

According to CBRE, increased trade, industrial production, employment and consumer consumption in the U.S. combined to drive the largest full-year Industrial investment total since 2007.

Total investment volume in U.S. industrial properties totaled $54 billion in 2014, a 13 percent climb over the prior year. If industrial investment continues to rise at the pace set in 2014, the 2015 volume will reach the prior peak of $61 billion, set in 2007.

The year closed with a very active quarter for industrial property investment, in terms of sales volume. The $16.1 billion of industrial property investment in Q4 2014 reflected a 6.3 percent gain over the year-earlier quarter. The quarter’s total was also the highest sales volume since Q3 2007 and the third highest in the past 14 years.

“The U.S. industrial market is firing on all cylinders. The low cost of energy and a strong dollar are contributing towards increased business investment, production, employment and consumer consumption. These diverse sources of growth have combined with local economic factors to generate demand for industrial space not seen since before the financial crisis,” said Jeanette Rice, Head of Investment Research, Americas, CBRE.

“The industrial market recorded its 19th consecutive quarter of positive net absorption, marking the longest such streak in more than 20 years. Meanwhile, stronger output is driving demand across the supply chain, from major distribution markets like the Inland Empire and Chicago to secondary markets linked to the transportation network, such as Indianapolis and Kansas City. Expectations for rent growth are above historical averages, while cap rates and IRR’s reflect healthy competition for high-quality assets.”

The light industrial space saw the greatest gain in investment activity, largely as a result of stronger market fundamentals. Light industrial, which is composed of mostly non-bulk facilities serving smaller industrial users, saw a 24 percent increase in sales volume in 2014, while investment in warehouse space rose 9 percent.

Industrial cap rate trends also reflect the increased interest in industrial product. Warehouse cap rates fell 36 basis points (bps) to an average of 7.0 percent in 2014. Light industrial cap rates averaged 7.4 percent in Q4 2014, down 40 bps from a year earlier.

Foreign investors acquired $1.8 billion of industrial assets–only about 7 percent of the total foreign investment in the U.S in 2014. The largest foreign buyers were from Canada, the United Arab Emirates and Norway. Chicago was the largest target market.

Read entire World Property Channel article here.

Kidder Mathews San Francisco Q4 Industrial Report

Well, now that 2014 is in the rearview mirror, we’ve been busy crunching the numbers from the final quarter of the year.  Overall, it was an impressive year with leasing and sales figures reaching all-time highs.  Competition is up and therefore cap rates and leasing vacancies were down.  Here’s an excerpt from the report:

The San Francisco industrial market stumbled in the fourth quarter, with -98,896 s.f. of negative net absorption increasing vacancy to 4.2%. Despite fourth quarter negative absorption, 2014 saw 58,808 s.f. of positive net absorption. Asking rental rates surged up towards prerecession highs, breaking $15/s.f. for the first time since first quarter 2008. The larger industrial leases remain in the San Mateo County submarket, where larger tenants are accepting a decentralized location to find adequate square footage. In San Francisco this quarter, industrial leasing activity was less than a quarter of the average from the past year, with low vacancy stifling deals due to limited space options for lease.

Read entire report here:  industrial-market-research-san-francisco-2014-4q

Terreno Continues Buying Spree, Snatches up Union City Industrial Projects

Address: 33306-33580 Alvarado-Niles Rd, Union City, CA

Seller:   Westcore

Buyer:   Terreno Realty Corp

RBA SF: 170,086 (between 3 buildings)

Lot size:  10.04 AC (437,342 SF)

Selling price: $23,800,000 ($139.93/SF )

Type:   Industrial – Warehouse/retail

This is another example of the strengthening of the industrial markets on both sides of the bay.  Kidder Mathews sold this building to Westcore in April of 2012 for $13 million, which now seems like a bargain.  It is a strategic piece for Terreno however, since they are also purchasing the new development directly behind this acquisition upon completion of the new construction for a reported $37.2M.  The adjacent site was formerly a SF Chronicle paper plant.

Foster City Office Building Sells for $39.5M to DivcoWest

Address: 1065 E. Hillsdale Blvd, Foster City, CA

Seller:   Marin County Employees Retirement Association

Buyer:   DivcoWest

RBA SF: 115,511

Lot size:  5.13 AC  (223,288 SF)

Selling price: $39,500,000 ($341.95/SF )

Type:   Class B Office

4-story office building.

Industrial’s Continued Outlook: Strong Leasing

By Paul Bubny

The third quarter marked another chapter in the ongoing success story of the industrial sector across the US and Canada, and Colliers International doesn’t see the sector losing its mojo anytime soon. With a 21-basis point decline in vacancy during Q3—to 7.5% in the US and 4% in Canada—and with the quarter’s 64.8 million square feet of absorption representing the second-highest quarterly tally since the recovery began, clearly the momentum is there.

And so it will continue even as more new product comes on line, Dwight Hotchkiss, national director of industrial | USA for Seattle-based Colliers, tells GlobeSt.com. “Although the rate of construction will increase in 2015, we predict strong, positive absorption,” he says.

“The second half of 2014 has seen a visible increase in activity for product between 50,000 and 250,000 square feet and, along with anticipated demand in big box, will drive the absorption numbers,” adds Hotchkiss. Regionally, the strongest markets for absorption in both Q3 and year-to-date included Chicago, Dallas-Fort Worth, Atlanta, Los Angeles and the Inland Empire, Houston, Indianapolis and Stockton/San Joaquin County, CA.

Colliers’ Q3 industrial report notes that development activity increased last quarter in both the US and Canada to a total of 155.9 million square feet under construction, up from 142.9 million square feet in Q2. “The absorption-new supply ratio increased slightly to 1.7:1.0, from 1.4:1.0 in Q2, but has come down significantly from more than 2.0:1.0 in 2013,” the report states. “This will be a key metric to gauge the supply-demand balance as development activity increases further” in subsequent quarters.

Where that development occurs may shift slightly, but only slightly, thanks to the uptick in demand for same-day delivery by shoppers buying online. “The strongest demand and development will continue to be in the major markets, which can service the major population centers which can be delivered same day,” Hotchkiss says, adding that “some next-tier cities will see some development as more and more retailers look for sites.”

Not only development activity has been strong: investment sales have exceeded $11 billion in each of the past six quarters, the longest such streak since Q1 2008, says Colliers. The average cap rate decreased to 7.3% in Q3, the lowest since Q2 ‘08, and cap rates for the top quartile of warehouse properties are noticeably lower, averaging 5.8% during the quarter.

Read entire GlobeSt article here.

Kidder Mathews Q3 Peninsula Industrial Report

We’ve seen a dramatic increase in the past quarter for owner/user purchases while leasing has been steady, but not crazy.  This mostly due to the fact that there is very little product on the market for lease.  Here’s the summary for the quarter:

The San Francisco Peninsula saw 124,038 square feet of negative net absorption this quarter, and 257,299 square feet of gross absorption. The market continues to stay productive with deals of all sizes completed throughout the Peninsula industrial market in the third quarter of 2014. San Mateo County experienced minimal occupancy losses as well which is not due to a lack of demand on the Peninsula, but rather a shortage of quality available space.

Read entire report here:  industrial-market-research-peninsula-2014-3q

Kidder Mathews Q3 San Francisco Office Report

San Francisco office is on fire and there doesn’t seem to be much holding it back from getting hotter.  Silicon Valley seems to be moving north into downtown as young tech employees want to take advantage of city living, meaning that more companies are looking to move into the city and gobble up more office and creative spaces.  Here’s an excerpt from the report:

San Francisco remains the hottest city in the nation for commercial real estate, with office rental rates surpassing dot-com era prices this quarter. No slowdown is in sight for the near future, as rapidly growing technology companies continue to expand throughout San Francisco. Leasing activity is already at record levels, and San Francisco is on pace to finish the year with over ten million square feet of gross absorption. With tenant demand exceeding the nearly four million square feet of office space currently under construction, competition is high. Investment sales activity is increasing as well, as buyers hope to see how high this peak will rise, and are willing to buy at lower cap rates to take advantage of this upswing.

Read entire report here:  office-market-research-san-francisco-2014-3q

Investor Purchases San Carlos Industrial Portfolio for $14.1M

Address: 360-380 Industrial Road, San Carlos, CA

Seller:   Tanklage Family Partnership

Buyer:   High net worth investor

RBA SF: 85,135 SF (Between 3 buildings)

Lot size:  5 AC

Selling price: $14,100,000 ($165.62/SF )

Type:   Industrial-Warehouse

This was a value-add/redevelopment play on a property that is located directly across the street from the new Palo Alto Medical Foundation clinic.

Yelp Signs 102K Lease at 55 Hawthorne Street, San Francisco

Comparable details:

Address:  55 Hawthorne St, San Francisco, CA

Landlord:  Harvest Properties and Invesco RE

Tenant:  Yelp

SF Leased:  102,000 (approx.)

Pricing:  $call

Type:  Class A Office

Term:  120 Months

The total building is 138K in which Yelp has the opportunity to expand into the entire building during the initial lease term. The building was developed in 1970 and is one block from the Second Street Technology Center and a few blocks from the expansive Transbay Project, the largest development currently under construction in the United States.

Industrial Cap Rates Continue to Decline

By Carrie Rossenfeld

The industrial sector nationwide is seeing declining vacancy rates and increased development, which has caused cap rates to drop since the beginning of the year, Bill Hankowsky, chairman, president and CEO of Liberty Property Trust in Malvern, PA, tells GlobeSt.com. Hankowsky will be speaking on the industrial development panel during NAIOP’s Development ’14 conference here later this month, and we spoke with him about the trends he is noticing in this realm.

“There are a handful of trends that everybody is focusing on,” says Hankowsky. “One is simply that the fundamentals of industrial space are solid and remain so. There’s a good demand for industrial space, absorption remains positive each quarter, vacancy is down nationally and rents are going up nationally.”

The second trend Hankowsky mentions is that development in the industrial arena is rising. “People need new, functional, state-of-the-art space in the size and configuration that they want it. Development is back apace across almost every market, which is both a ‘glass is half empty’ and ‘glass is half full’ situation: developers are glad to be back in the business of developing, and a number of us feel it is disciplined development, but contrarians are nervous that there will be too much development and it will undercut market strength and sector growth.”

The third trend he notes is the issue of declining cap rates, which has to deal with how in-demand this sector has become. “The fact that industrial is a very highly sought-after after class is stimulating lots of capital to the space. Cap rates are lower today than they were at the beginning of the year.”

E-commerce is another obviously huge trend, which is creating a new source of demand, says Hankowsky. “There are different logistic networks for various companies. In some cases, buildings are being constructed closer inside the metros, and there is constant thinking by our customer base about how to better store, handle and distribute their product.”

Read more of GlobeSt article here.


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