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Friday, April 24, 2015

Foreign Investment in Industrial Assets Levels-Off, SteadyDemand and Higher Pricing Ahead

by Erik Foster (Chicago)

Foreign investment in the U.S. industrial real estate sector remained historically high, yet dropped to a more sustainable level in 2014, following a very solid 2013.  A new report by our National Industrial Capital Markets Group shows investment in corporate distribution spaces and other industrial assets totaling $2.4 billion in 2014, down from a record level $3.1 billion in 2013, but close to the $2.51 billion in 2012. 

Among the top buyers in 2014 were: Canada ($677.7 million); Norway ($450 million); Bahrain ($193 million); Germany ($187.8 million); and Mexico ($177.2 million). By the end of 2014, foreign investors had purchased 185 industrial properties in key markets across the country, a decrease from 213 in 2013. Among the top markets in 2014 were: Chicago, IL ($178.3 million); Jacksonville, FL ($137.7 million); Greenville, S.C. ($133 million); San Francisco’s East Bay area ($119.7 million) and Cleveland, OH ($92.2 million).

The report was based on an analysis of data from Real Capital Analytics from 2007 through March of 2015. Please contact me directly to obtain a copy.

Foreign investors have been on a buying spree for several years in the U.S. and the trend will continue, especially in light of geopolitical issues and waning European and Asian economies. Investors continue to see the U.S. as a safe haven.  They recognize that there are opportunities to buy stable assets that can provide stronger, and more dependable, yields than those found in their own or other foreign countries. The decrease in volume in 2014 is not a surprise, as we move toward a more stabilized investment volume that likely will be sustained for years to come; the first quarter of 2015 showed similar sales volume and signs that activity will remain strong.  In fact, we believe that there will continue to be more platform and entity acquisitions in the days ahead too, very similar to GIC and their recent purchase of IndCor.

Among the key trends to watch in the second quarter of 2015 and beyond are:

  • Canada will continue to be at the top of the list of foreign investors acquiring US industrial assets, but Canadian buying power has diminished partly due to decreased vacation in its currency.  Asian buyers will be high on the list as well, continuing their recent strong interest levels in this property sector.
  • Leasing fundamentals will continue to improve, creating tangible rent growth and continued positive absorption in mosts markets across the country.
  • A lack of supply will continue to push investment pricing higher, new spec construction will not come online fast enough to meet demand in most markets.
  • Demand for corporate distribution space and other industrial assets will remain steady for the foreseeable future due to the stability and long term growth in this sector.

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