Foreign Investment in U.S. Industrial Soars 127%

by Erik Foster, Chicago

Foreign investors spent $2.64 billion buying distribution, warehouse and manufacturing buildings in the United States in 2013, the highest investment total since the beginning of the recession in 2007. Accordingly, U.S. industrial sales volume has increased 127.6% since 2011, with Canadian investors spending more than all other foreign investors combined.  These are among the key findings of a white paper I recently wrote on foreign investment in U.S. industrial real estate markets.

A couple of highlights of the report:

• During each of the years from 2011 to 2013, investment from Canada was higher than the total spent by all other countries combined.
• Investors from Canada, Australia, Germany, South Korea, the United Kingdom, and other countries are buying industrial assets in all major U.S. markets, seeking stable cash flow and the opportunity to increase long-term value through the potential for higher rental rates.
• The assets purchased represent a range of asset types, yet most are distribution properties in major markets, through different investment vehicles, funds, etc.

Some predictions for 2014:

• As vacancy rates move below 10% in many core markets and new construction remains minimal (at almost 1/3 of the volume as the 2007 peak), limited supply and strong demand will likely drive rents upward during 2014. This bodes well for investors who want to increase value through rental appreciation, so be on the lookout for a voracious appetite for buildings with leases signed in 2009 in tight markets!  
• Also, investors will continue to shift to secondary markets, such as Indianapolis, Columbus and Memphis, for more better yields and a chance to gain a foothold into these growing markets given their logistics prowess.

Houston - What's Next?

By Rand Stephens (Houston)

2013 was another good year for commercial real estate in Houston.  Driven by an excellent year of overall job growth…approximately 3.1% year-over-year…all boats were floated by the rising tide.  Office, industrial, retail and multi-family all saw substantial increases in rental rates and property values.

However, in the second half of 2013 the Houston economy started to see a slowdown in job growth due to a slowdown in the energy industry.  Looking into 2014, Houston’s job growth will be lower than 2013…around 2.5%...but at a more sustainable level than at the torrid pace seen over the last several years.

Here are my predictions for 2014:

• 60,000 new jobs will be created.
• Rental rate growth in all class A properties will increase at slower rates than 2013 due to enough new inventory hitting the market to provide a rental rate cap on the high-end of the market.
• Rental rate growth in class B properties will be more substantial than class A as class B properties change hands, get upgraded and become more attractive to the user.
• Vacancy rates in the office market will go up slightly due to new inventory coming online and vacant space left behind as companies relocate to new buildings.
• Lenders in Houston will continue to be conservative with their underwriting of new development and acquisitions; this will insure ongoing fundamental stability in all product types.
• Houston will continue to grow as a major center for the medical industry leveraging off of the Texas Medical Center’s growth and prominence as one of the top medical centers in the world.
• The Port of Houston will grow more than expected due to infrastructure improvements, widening of the Panama Canal and logistical problems in other major US ports.
• Houston Republican congressman, John Culberson, will take over the appropriations subcommittee that oversees the Johnson Space Center.  With Culberson’s appointment, the Johnson Space Center will start growing again and add unexpected job growth.

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