We have seen consistently steady
industrial investment sales activity across the country and I believe it will
continue well into 2014. Quantifiable
leasing data as demonstrated by increasing rental rates and positive absorption
are helping to shore-up assets that were once waning because of low cash flow
and depressed rental rates. These are
indicators that the industrial market has stabilized and is poised for
continued recovery in the latter part of 2013 and beyond. This is also driving
investment sales activity as investors look for stable cash returns on core
properties. What’s more, they are
looking for future yield from B assets that provide an opportunity to reset existing
rents at much higher rates in the coming years; an industrial building with
tenants who signed leases in 09 & 10 is looked upon very favorably by
investors.
The increasing prevalence of class
B industrial assets investment sales is a key investment trend to watch during
the rest of 2013 and into 2014. A shortage of core product, significant demand
from capital (both equity and debt) historically low debt pricing and
expectations of the afore mentioned rental rate increases that could boost
investor returns, are creating an environment that allow B assets to
trade. We are seeing this trend in the
assets that we are selling across the country.
In fact, we are seeing these kind of investment being looked at by new
money sources such as Canadian and international capital, causing further competition for product
and higher pricing.
The shift in focus for many to the Class B
market is also due in great part to the large spread in cap rates between class
A and class B product. Most class B transactions are trading near 8% cap rates
and below in many markets. This spread
is historically wide, 200-250 basis points in some markets when compared to A
product. Also, A product returns are so low
in comparison to B, even nominal moves in interest rates like we had recently
can create a ripple affect in the buyer pool resetting these A deals to lower
pricing levels, moving cap rates up, and further compressing the spread between
A & B industrial assets.
