Industrial investment expected to stay steady, possibly increase

A fourth quarter investment sentiment report by Real Capital Markets, in conjunction with SIOR, found that industrial investment activity is expected to continue its run into 2018 as strong leasing, construction and investment sales continue to fuel many markets across the country, including Chicago.

The RCM|SIOR report showed that 90.3 percent of brokers and investors believe investment activity will remain comparable to recent levels, with 47.8 percent expecting activity will increase, even if only nominally.

In 30 years in the business, Geoff Kasselman, SIOR, and Executive Managing Director with Newmark Knight Frank, has never seen a market like we see today; and he’s grateful for it. He attributes the market’s success to “a perfect storm of factors,” from big data-driven supply chain changes to the growing importance of e-commerce to a greater supply and demand balance, among other things.

Kasselman, along with Michael Brennan, founder of Brennan Investment Group and David Egan of CBRE, will further discuss those various factors in a panel discussion, “E-Commerce: Fight It or Flaunt It“, at the 16th Annual Commercial Real Estate Forecast Conference on Wednesday, January 17 at the Hyatt Regency Chicago.

Kasselman believes the importance of e-commerce, and specifically the way Amazon is changing the marketplace, cannot be overstated. “Everyone needs an Amazon strategy,” Kasselman said. “That’s true for consumers of industrial real estate.”

He said if you want a building, you need to assume that Amazon wants it too, and may outbid you for it. He added that if you are located near an Amazon facility, there will be great competition for labor, and it too could cost you more. “Amazon is a global phenomenon,” he concluded.

A colleague of Brennan’s at Brennan Investment Group, Scott McKibben, the firm’s Chief Investment Officer, acknowledges the role e-commerce has played in the dynamic run of 30 consecutive quarters of positive absorption in the U.S. While he won’t fight the impact of e-commerce, he’s more likely to temper it.

“We have to be careful to not overemphasize its role, because it is not solely responsible for the success of the industrial market,” McKibben said. He also believes that other key contributors include the robust housing industry (specifically multifamily), the comeback of the auto industry (both of which have long supply chains) and the “onshoring” of industrial manufacturing back to the U.S.

McKibben noted that the U.S. saw a net gain of over 200 manufacturers moving into the U.S. in 2016 and he expects that number to be even larger in 2017. Part of Brennan’s portfolio includes 200 manufacturing buildings in 25 states.

“Manufacturing is a much bigger driver than people realize,” McKibben said, noting that increasing use of robotics in many manufacturing applications have replaced some low paying jobs. Those savings, combined with lower transportation costs, are helping to drive manufacturers back to U.S. shores.

These opinions lay the foundation for an interesting discussion, moderated by NAI Hiffman’s Adam Roth, SIOR, among Kasselman, Brennan and Egan—with additional insights from Michael Drew of Structured Development.

Later in the Forecast program, a panel of industrial experts will delve further into the state of the Chicago industrial market. The panel includes Kevin Matzke, Clarius Partners LLC; Dan Smolensky, SIOR, Taurus Modal Group; Dan Brown, Brown Commercial Group; Jeff Bennett, McColly Bennett; John Hasse P.E., Hasse Construction Company; Scott Howe, Solect Energy; and Ivan Baker, Corporation of North Central Illinois.