Industrial Real Estate: Valuation Fever
As published in Commercial Property Executive:
What are the implications of recent industrial mergers and acquisitions, and should the market expect this activity to continue? Green Street Advisors Senior Analyst Eric Frankel offers his perspective.
Multiple years of record-level rent growth have driven robust investor demand for industrial properties, and this pattern will likely persist for the foreseeable future. Private equity behemoth Blackstone’s purchase of Gramercy Property Trust and other smaller transactions show that the rapid rise in rent is translating into higher property values. Over the three months ending June 1, industrial property values moved up by approximately 5 percent, according to Green Street Advisors’ Commercial Property Price Index. The industrial sector is benefiting from consistently lower cap rates, especially relative to other commercial property types. Green Street recently lowered its industrial cap rate estimates across the U.S. by 15 basis points, with additional decreases in select markets.
Tenants are increasingly in search of warehouses in large population centers to gain better access to end consumers and labor—a shift that presents some notable challenges. Land in high-density areas tends to be significantly more expensive to develop, projects are characteristically marked by lengthy and costly entitlement periods, and rents are much steeper. Moving forward, it will become increasingly difficult to add in-fill supply, contributing to higher overall development costs. Considering robust industrial demand and disciplined supply growth, Green Street expects strong market occupancy and rent growth to continue.
To read the full article, click here.