Following four years of record activity, foreign investment in the U.S. industrial real estate sector dropped to a more sustainable level in 2014, according to a report by Avison Young‘s National Industrial Capital Markets Group. Investment in corporate distribution spaces and other industrial assets totaled $2.4 billion in 2014, down from a record level $3.1 billion in 2013, but close to the $2.51 billion in 2012, according to a review of Real Capital Analytics statistics through March of 2015.
“Foreign investors have been on a buying spree in the U.S. market for several years now, looking for opportunities to buy stable assets that can provide stronger yields than those found in their own or other foreign countries,” said Erik Foster, a principal with Avison Young and the practice leader for the National Industrial Capital Markets Group. “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.”
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 first quarter of 2015 showed similar sales volume and signs that activity will remain stable. “We expect to see foreign investors continue to look for ways to leverage large portfolios of U.S. assets across multiple markets,” Foster said.
Among the key trends to watch in the second quarter of 2015 and beyond are:
• Canada will continue to top the list of foreign investors acquiring U.S. industrial assets, but Canadian buying power has diminished due to decreased valuation in its currency. Canadian investors’ appetite for U.S. product remains strong.
• Leasing fundamentals will continue to improve, creating tangible rent growth and continued positive absorption in most 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.
• Demand for corporate distribution space and other industrial assets will remain steady for the foreseeable future—due to stability and long term growth in this sector.
According to Real Capital Analytics, the top five countries for origin for investment in U.S. industrial assets in 2014 are Canada ($677.7 million); Norway ($450 million); Bahrain ($193 million); Germany ($187.8 million) and Mexico ($177.2 million).
Canada continues to be the dominant country of origin for U.S. industrial investment, with a 2014 volume of $677.7 million, down from the record $1.6 billion invested in 2013 and $1.4 billion invested in 2012. In 2013, however, the bulk of the volume from Canada was due to one transaction—Brookfield Properties’ purchase of IDI and its 75 building portfolio for $1.1 billion.
The first quarter of 2015 showed Canada with $174.3 million in U.S. industrial investments, on pace with the total for 2014. Other notable sales volume in that quarter included Switzerland with $61.2 million and the United Kingdom with $52.6 million.
Canada’s cumulative total investment over the past five years was around $5 billion, dwarfing countries like Germany, with $770 million, and Australia, with $200 million over the same time period.