Real Capital Markets/SIOR Industrial Sentiment Report Says Industrial Investment Should Continue Healthy Run into 2018, with Pricing Increasing

"The Industrial Sector Continues to Draw Investors" Report Says

CARLSBAD, Calif., Nov. 29, 2017 /PRNewswire-iReach/ -- According to the Real Capital Markets (RCM)/SIOR Investment Sentiment Report, industrial investment is expected to continue its healthy run in 2018. The report suggests that strong leasing, construction and investment sales will fuel the market in the new year.

"The industrial sector continues to draw a wide range of investors, due to its stability and the potential for long-term growth," said Steve Shanahan, Executive Managing Director of RCM. "That equilibrium and other market dynamics make industrial investment properties the preferred option among a wide range of investors. We don't foresee a dramatic shift in the near term."

This year, a landslide number of brokers and investors across the nation assess that investment levels will remain constant, with some predicting activity increases. In fact, according to the study, over 90 percent of brokers and investors believe investment activity will remain comparable to recent levels, with 47.8 percent saying activity will increase, even if only nominally.

RCM and SIOR collectively surveyed their databases of industrial property investors and brokers to gauge investment sentiments, the greatest threats to the industry, the factors most influencing their acquisition decisions and where they see the greatest opportunities. Highlights of the RCM/SIOR study, released in late October, 2017, include:

Greatest Impact

Specific factors believed to be having the greatest impact on industrial impact, according to survey respondents, activity include 37.4 percent identified e-commerce as having the greatest impact followed by the general strength of the economy at 34.5 percent. Some participants in the study found that the industrial market moves in tandem with e-commerce, but others argued that the strength of the market can't be placed on simply one factor.

"One of the most interesting findings of the RCM/SIOR Investor Sentiment Study was the balance in which investment activity is being influenced," said Tina Lichens, COO of RCM. "It isn't just about e-commerce. Across the country, participants pointed to the ripple effect of extended supply chain dynamics, recovery in the housing market and increases in atypical manufacturing operations as driving industrial investment activity."

Potential for Threats

Brokers and investors believe that the largest threat to the industrial investment space include overbuilding and oversupply. Respondents also addressed activity across key submarkets, pricing expectations, and how the political climate might influence industrial investment activity into 2018. For investors, the top threats were overbuilding (40.6 percent), unrealistic seller expectations (22.9 percent) and lack of supply of quality assets (17.7 percent). Brokers ranked lack of quality supply first (46.4 percent) followed by unrealistic seller expectations (14.6 percent).

Pricing Industrial Assets

In some core markets, pricing of industrial assets has been strong for several years. This study found that, like the prognosis for investment activity levels, an overwhelming majority—92.7 percent—of principals and brokers believe pricing will at least stay the same, with 33.8 percent anticipating increases of as much as five percent or more.

Opportunity is Subjective

Increasingly, according to industrial professionals, investors are becoming more and more tolerant of rent rollover. Where vacancy and rent rollover were once taboo, investors now see an opportunity to increase rents and improve net operating income (NOI), therefore enhancing value.

In the survey, infill development and mid-size single tenant facilities were viewed similarly. One broker, however, suggested that infill may be more talk than opportunity, saying that some use the term simply to portray greater importance for a fringe suburban location.

Buoyed primarily by investors' preference, mid-size, modern, multi-tenant properties are currently viewed as the most attractive investment opportunity, with over one third (35.8 percent) of all respondents selecting those types of properties. For principals, mid-size, multi-tenant facilities are favored at a rate of 2:1 over infill development opportunities, followed closely by newly-built high-cube distribution facilities.

Cap Rate Compression

According to the findings of the RCM-SIOR Industrial Investment Sentiment Report, and supported by a series of in-depth interviews with principals and brokers, the current state of the market is as good as it has been in perhaps as many as 30 or more years.

More than 17 percent of principals and brokers believe there could be some level of cap rate compression in the next 12-18 months. The vast majority, however, believe that cap rates will either remain the same (46.9 percent) or increase slightly (34.8 percent). One investor suggested the market has "reached the upper limits of pricing" and expressed "surprise by any meaningful compression in cap rates."

To learn more about the strength of the market, and why industrial experts don't expect any substantive changes in the near term, download a copy of the report.

About SIOR

Headquartered in Washington, DC, the SOCIETY OF INDUSTRIAL AND OFFICE REALTORS (SIOR, www.sior.com) is a global professional organization that certifies commercial real estate service providers with the exclusive SIOR designation. 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 nearly 3,100 SIOR members in 630 cities in 34 countries.

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 53,000+ assignments with $1.9 trillion in CRE transactions. Over 50% of all U.S. commercial assets sold, over $10 million, are brought to market using RCM's online marketplace annually. Follow RCM on Twitter @RCM1 or LinkedIn at https://www.linkedin.com/company/real-capital-markets.

Media Contact: Michael Millar, Open Slate Communications, Inc., 847-863-1037, mjmillar@openslatecommunications.com

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SOURCE Real Capital Markets



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