U.S. Investment Outlook for Industrial Remains Strong for 2020; RCM-SIOR Report Shows E-Commerce and Strong Market Fundamentals Driving Activity

CARLSBAD, Calif., Oct. 16, 2019 /PRNewswire-PRWeb/ -- U.S. industrial investment is expected to continue at a steady pace into 2020, although headwinds created by tariffs and a slowing economy are beginning to gain steam, according to a new RCM-SIOR Industrial Investor Sentiment Report.

Investors are shifting strategies, however, to find safe havens against any market slowdown. Some investors are adjusting their portfolios toward land-constrained markets that provide the potential for higher rent growth. Among those strong markets are Seattle, Miami, Northern New Jersey, and parts of Southern California. Other investors are moving back to core markets to minimize risk or are focusing on secondary markets where further cap rate compression is more likely, according to the report.

"Investors are projecting a steady flow of industrial activity in the U.S. for the foreseeable future, given the strong fundamentals and the stability this sector offers," says Steve Shanahan, Executive Managing Director, RCM, a part of LightBox. "Investors are keenly aware of the potential for an economic slowdown but are focused on the long-term horizon and taking the steps necessary to protect their investments."

The RCM-SIOR Report aggregated insights and perspectives from industrial market experts—investors, developers and brokers—across the country. The report shows that industry experts are thinking more strategically about their investments and decisions but are not pulling back from the industrial sector.

"We definitely find ourselves at a very interesting point. As we look ahead and evaluate a softening in the market, we can still expect strong demand to continue for the foreseeable future," says Outgoing SIOR President Robert G. Thornburgh, SIOR, CCIM, a Regional President for Kidder Matthews, based in the company's El Segundo, CA office. "Further down the road, the corresponding rise in values, construction, labor and talks of a recession – while not new topics – could clearly develop into sizeable headwinds."

Key survey responses
The RCM-SIOR report was based on surveys and interviews that tracked participants' perceptions of investment activity, pricing, perceived threats and opportunities, and cap rates. Responses underscore the sentiment that the market remains on solid footing, even if there is a slight tempering of enthusiasm. Among the findings are:

• Investment Activity—E-commerce continues to reign as the top growth factor noted by survey respondents. 44% noted growth in e-commerce while 24% noted the amount of capital waiting to be placed in the market.
•     Industrial Pricing—25% of respondents said pricing will increase by 5 percent or more over the next 12 to 18 months, down from 38% in 2018 and 34% in 2017. In the 2019 survey, 35% said pricing will increase by less than 5%, while 34% said pricing will stay the same.
•     Cap Rates— Nearly 32% of participants in the RCM-SIOR report expect cap rates to compress further over the next 12 to 18 months. Since 2015, national average cap rates have compressed from 6.8% to a current level of 6.3%, according to data from Real Capital Analytics (RCA). Those rates are down to 4% to 5% in key markets, however, according to report participants.

E-commerce growth is key sustaining factor for the industrial sector
E-commerce, which is projected to grow by 10% per year, continues to be a transformational force in the industrial sector. While there is considerable activity from more traditional manufacturing, packaging, and related tenants, the buzz that e-commerce creates is difficult to overlook.

"The significant expansion in e-commerce and the ongoing need for realignment of the corporate supply chain continues to shape the industrial sector and helps position it as a top asset class for investors, now and moving forward," says Tina Lichens, Chief Operating Officer of RCM. "There is also a significant push to tap into consumers in large, urban population pools, which is driving considerable warehouse and distribution activity."

Construction still active and driving investment pipeline
The U.S. industrial market has seen significant construction during the past five to seven years, as developers look to fill demand from tenants seeking modern space. Markets such as California's Inland Empire, along with Dallas, Chicago, and others have seen millions of square feet of new buildings hit the market, with steady leasing following suit.

While development has been tempered by a balanced lending environment, there are some markets where overbuilding is a perceived concern. In this year's report, 51% of the survey respondents noted being somewhat concerned about overbuilding, compared with 33% saying they were not concerned at all. Some report respondents noted the continued need for new development in some markets, however, given the low vacancy rates and strong tenant demand.

Economic and non-economic concerns posing threats
The report also notes that brokers and investors are concerned about the ongoing disruption from tariffs and escalating trade wars, which they say cause volatility and increased costs. Closer to home, experts say the ongoing labor shortage—both for workers in general and for those with specific manufacturing, computer and related skills—is having ripple effects throughout the U.S.

According to the report, the greatest non-economic threat to the industrial market is equally balanced between lack of supply of quality assets and unrealistic seller expectations and, to a lesser degree, overbuilding or oversupply. Given the volume of product that has traded over the last several years, investors have been consistent in the RCM-SIOR survey in citing lack of supply as a concern. Concern about unrealistic seller expectations has been on the rise, as sales activity has continued at a steady pace.

Markets to Watch in 2020
Heading toward 2020, many investors surveyed and interviewed for this report said that industrial activity will continue to be strong in core markets, such as the Inland Empire, Dallas, Chicago, and Northern New Jersey. Coastal markets, particularly those that tie into port activity, such as Los Angeles and Miami, are also expected to perform well due to the limited potential for further development.

Also, markets with a strong business climate, a growing population base and solid logistics infrastructure are on the radar of investors. States with reasonable regulatory oversight and legislation, such as Arizona, Nevada, Texas, Florida and Tennessee, also are viewed favorably.

In summing up the global influence of e-commerce and need to evaluate each market's characteristics, incoming SIOR Global President Mark J. Duclos, SIOR, CRE, President of Sentry Commercial, says "E-commerce has brought a globalized focus to this sector, and may be a constant thread across the country, but the majority of markets also are driven by the local market users' needs and economic considerations."

To download a copy of the 2019 RCM-SIOR Industrial Investor Sentiment Report, click here.

About Real Capital Markets
Founded in 1999, Real Capital Markets (RCM) is the global marketplace for buying and selling CRE. RCM increases the speed, exposure, and security of CRE sales through its streamlined online platform. Solutions include integrated property marketing, transaction management, and business intelligence tools to unify broker-level and firm-level data and work flows. RCM has executed over 72,000 assignments with total consideration in excess of $2.4 trillion. Approximately 50% of all U.S. commercial assets sold, over $10 million, are brought to market using RCM's online marketplace annually.

RCM has published several Investor Sentiment Reports covering the Retail, Industrial and Multifamily sectors over the past two years. To view and/or download a copy of previous Real Capital Markets Investor Sentiment Reports, click here.

Follow RCM on Twitter at @rcm1
on LinkedIn: https://www.linkedin.com/company/real-capital-markets

About LightBox
LightBox is a leading provider of due diligence, risk management, location intelligence, marketing and workflow solutions that enable decision making for 50,000 CRE brokers, 1,100 banks and lenders, 2,000 appraisal firms, and 5,000 environmental consulting and engineering firms, with more than $470 million in services awarded and almost 28 years serving the CRE lending industry. By combining proven brands with new core business capabilities, the company is creating new solutions to facilitate transparency, efficiency and insight for real estate. Established in 2018 and backed by Silver Lake and Battery Ventures, the company's brands now include EDR, RIMS, Collateral 360, Real Capital Markets and Digital Map Products. Learn more at http://www.lightboxre.com.

About SIOR
The Society of Industrial and Office Realtors® (SIOR) is the leading society for industrial and office real estate professionals. Individuals who earn their SIOR designation adhere to the highest levels of accountability and ethical standards. Only the industry's top professionals qualify for the SIOR designation. Today, there are more than 3,400 SIOR members in 685 cities in 36 countries. http://www.sior.com.

SOURCE Real Capital Markets