Investment in distribution and warehouse facilities across the United States rose 55 percent during the past two years, from $15 billion to $23 billion, underscoring a continued confidence in the industrial real estate sector, according to an Avison Young analysis of research from mid-year 2012 to 2014.
“We are seeing strong interest from institutional investors who want the stability and long-term growth potential that the industrial sector offers,” said Erik Foster, a principal with Avison Young and the national practice leader of the firm’s Industrial Capital Markets Team. “As the recovery continues to expand and as investment activity in certain core markets reaches a peak, investors increasingly are focusing on secondary markets such as San Diego, Orlando, Indianapolis and Charlotte.”
According to research from Real Capital Analytics, national industrial sales volume rose to $23.2 billion at mid-year 2014. This represents a 54.7 percent increase from the $15 billion level reached two years ago, at mid-year 2012. It was a 26.8 percent increase from the $18.3 billion level at mid-year 2013. Volume increased 22 percent from mid-year 2012 to 2013.
Nationally, the West region continued to see the majority of activity and moved from $5.2 billion in investments at mid-year 2012 to approximately $6.6 million in 2014. However, its overall share of the market declined, more so than any other market.
Two years ago, activity in the West region accounted for more than one third (34.6 percent) of all industrial investment activity. By mid-year 2014, it accounted for just over one quarter (28.3 percent) of all activity, according to statistics from Real Capital Analytics. “The decrease in the region’s market share isn’t surprising,” Foster said. “It is more reflective of the national recovery of the U.S. industrial market and investors’ shifting focus into other markets.”
The mid-year research shows the continued shift toward secondary markets, as limited supply and higher pricing limits options in markets such as Los Angeles and New Jersey. For example, San Diego had a 260 percent increase in activity – from $98.6 million at mid-year 2013 to $355 million at mid-year 2014. This is due in part to population growth and the strength of the port markets on the West Coast.
Also, Orlando saw a 202 percent jump in that time frame—from $19.2 million to $58 million. This is due, in part, to the population density in that area, the continued economic growth in the state of Florida, and the improving port infrastructure.
The mid-year statistics also showed that the Midwest was a steady performer. It was the only region to experience gains in each period, moving from 15.1 percent of activity in 2012 to 16.4 percent in 2013 to 16.5 percent in 2014. The region accounted for the third highest activity in 2012 and 2014 and the second highest in 2013. “Historically, recoveries always come later to the Central U.S. and this one is no exception,” Foster said. “Consequently, the gains in Midwest markets are not a surprise, especially when you factor in trends such as on-shoring.”
The Southeast region was the most volatile during that time period, moving from the second most active region in 2012 to fifth in 2013 and back to second again in 2014.
At mid-year 2012, the Mid Atlantic and North East regions accounted for less than 10 percent of investment activity at 9.5 and 9.8 percent, respectively. By mid-year 2014, the percentage of overall activity taking place in the North East had grown to 12.3 percent, while Mid Atlantic activity had increased to just under 10 percent (9.8).
Markets with the greatest declines in sales activity from mid-year 2013 to mid-year 2014 were Miami, 71 percent; Eastern Pennsylvania, 56 percent; and Baltimore, 50 percent.
