Industrial’s music never stopped

Hodes Weill’s vice-president sees significant capital looking to join the party

Despite the challenges and downturns of 2020, the indus­trial real estate sector contin­ued to reign as the preferred asset class among investors in 2020. It remained resilient amid the ongoing covid-19 pandemic and continued its strong performance.

Despite a decline in overall transac­tion volume from an all-time high in 2019, industrial real estate saw rental rates increase, absorption remained positive and cap rates remained flat. In some cases, cap rates compressed in se­lect markets.

Developers, owners and operators of industrial real estate continued to see demand for a wide range of space, from occupiers needing 1 million-plus square feet for regional distribution centers to those requiring less than 100,000 square feet for more urban, in-fill, last-mile space.

Investors that were beginning to question the rise in overall construc­tion activity and new supply saw the completed space quickly absorbed by demand of third-party logistics suppli­ers, e-commerce firms and retailers.

After an initial slowdown in late Q1 and early Q2 with the onset of the global pandemic, institutional cap­ital continued to pile into the asset class across the risk/return spectrum, from speculative development to the acquisition of core portfolios leased to Fortune 100 tenants on long-termleases. Investors globally remain under-allocated to the real estate asset class and industrial continues to bene­fit from this weight of capital.

A change of tune

While the sector has benefited from several tailwinds specific to it (ie, growth in e-commerce), its perfor­mance can also be attributed to the global shift in institutional portfolios from retail and office to industrial over the past few years as investor interest changes.

Read the entire commentary here.