For insight on key trends shaping today’s industrial market, REjournals turned to NAI Hiffman Executive Vice President Kelly Disser.
REjournals: What are the key trends shaping the current industrial market, and how have they evolved over the last year?
Kelly Disser: Fed funds and interest rates are a major factor, as they are impacting cap rates and required yield on cost for development. This relatively quick adjustment/increase has caused a slow down in terms of the amount of new development and new construction as compared to recent years.
The volatility of the rates and increased costs of funds (debt and equity) has caused an increase in required returns of investors. It has also caused a general slow down in the capital markets and investment world as many investors have been more cautious to evaluate how the market evolves, or to possibly wait and see how it plays out.
REjournals: What are the main factors driving demand, and what types of industries are driving this growth?
Disser: The American consumer continues to have the ability to spend—on both services and goods. The supply chain growth to ensure that these products are deliverable to end consumers has resulted in continued leasing activity and absorption. The net result of this leasing/space demand has been rental rate growth.
In regard to demand for investment/capital flows, the demand continues to grow as many investors have not deployed as much capital in the past 12 months due to the volatility. When we start to see some stability in the capital markets, we expect to start to see capital flows again and potentially a rush given the pent up demand of past 12 months.
REjournals: What challenges exist for investors and developers, and what strategies can be employed to navigate them effectively?
Disser: Navigating interest rate risk and a volatile debt market. In many cases additional equity is required to underwrite and fund deals.
Disser will speak at REjournals’ upcoming 20th Annual Chicago Industrial Real Estate Summit, to take place on June 20, 2023 at Hyatt Lodge in Oak Brook, Illinois. To register for this event, click here.
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