The
industrial capital markets sector continues to fire on all cylinders in most
every market across the country. In Chicago,
L.A. New Jersey and many other markets, a new trend is now taking a more
favorable position with many investors. While there is a lot of talk about record
setting pricing of core buildings in major markets, and even core buildings in secondary
markets, we’re seeing a lot of interest in the “infill B” assets in major and
secondary markets.
Those
emerging hot spots are located around the perimeter of our larger cities, such
as Chicago, Los Angeles and Northern New Jersey, the BWI Corridor and Miami. In
Chicago, for example, the O’Hare market continues to dominate as one of the
largest submarkets within the country given it’s access to O’Hare International
Airport, rail and highway linkages, but also it’s close proximity to
Chicago. There is also a limited supply of
land, and investors are eager to pull together deals on buildings they might
not have considered several years ago.
In
addition, older buildings are being torn down in favor of new speculative development,
which in many cases becomes leased before the work is complete. The “spec-to-suit” phenomenon is prevalent in
these infill markets where there is older B product.
With ties
to a major core market, these infill markets have added cache and appeal to
investors. Typically higher yielding,
they are a more affordable option than the true core product. Finding that Class A asset in today’s market
is a tricky, and highly sought after, proposition.
With lots
of capital still chasing a smaller pool of assets, these major markets are
attractive because they allow investors an entry into the periphery of those
core markets. They also are popular because:
- Mature markets have proven fundamentals when compared to emerging markets.
- Buyers of these Infill B assets have seen tangible rent growth
- These cities offer the infrastructure that is key to the industrial base—airports, rail, intermodal, and, in some cases, ports.
- Those sites are tied to densely populated areas, which are ideal for e-commerce and other consumer focused fulfillment businesses.
We’ve
seen this scenario play out in even markets such as Southeast Wisconsin. We assisted CenterPoint Properties in selling
two portfolios, totaling 22 buildings and nearly 3 MSF in Milwaukee. The
portfolios were heavily tied to the General Mitchell International Airport and
the local population centers within Milwaukee, which continues to be a draw for
regional industrial businesses. Infill
assets with tenants who need to be close to their customers were typical in
these assets, and institutional investors took note. Both of these portfolios sold to very
sophisticated institutional capital sources, one of which was an offshore European fund.
