class A newly-built product. Our patientcapital doesn’t need immediate cash flow,which enables us to invest in institutional-quality assets in strong locations.”
LET THE GOOD TIMES ROLL
It is hard to overstate how well the industrial asset class has performed during thepandemic, but here is one measure: JohnChang, director of research services atMarcus & Millichap, says that now is a goodtime to buy in almost every sector—exceptindustrial. For industrial, caution isadvised, and it might even be a good timeto sell with prices elevated in some areas ofthe country.
Industrial pricing is up 7.4% year-over-year and 1.9% from Q2 to Q3 2020,according to Real Capital Analytics. In Q3,industrial rents reached a historic high of$6.32 average per square foot nationally,which is a more than a 36% increase overthe previous cycle record set in 2007,according to JLL. Rent collections hit
99.4% in July.
With COVID delaying developmentpipelines by two or three months, newdeliveries will be limited in the second halfof 2021, according to JLL. That could leadto bidding wars for new properties, whichwould only increase values, JLL cautioned.
Jonathan Needell, president and chief
investment officer of KIMC, though, notes
that people shouldn’t assume that assets
across the industrial sector are trading at
those frothy prices. “The reality is that not
everybody can get a tenant like that, and
not every property deserves a cap rate
backed by those kinds of tenants, such as
Amazon and FedEx,” he says.
Needell says the Amazons of the worlddemand features that aren’t found in evenreasonably new buildings. Fifteen yearsago, buildings had a 32-foot clear height,and there were deep truck courts for turnaround. These buildings also had one perthousand parking.
But today’s high-tech users have different demands. He says they have advancedbeyond what was once the lowest technology and innovation level within real estate.
“Now, if you lease to someone likeAmazon, you have to have three per thou
sand parking,” Needell says. “They’ve done
a mezzanine triple deck in the middle of
the large industrial building that is essen-
tially a small office building.”
Instead of having just docks and a turn-
around court, industrial buildings now
need one-third more space in truck courts
for storing trucks that are not being docked
“They’ve got a whole extra third of depth
that they’re adding for the containers and
trailers,” Needell says. “So, instead of two
depths, because you need to turn around,
it’s three depths.”
Between the need for more storage trail-
ers, parking requirements and the sophisti-
cated processing power through the same
infrastructure demanded inside the build-
ing, not every warehouse can serve high-
“It is a different building than the majority of industrial, even the stuff that is only 10or 15 years old where there was 32-footclear height and one per thousand parking,” Needell says.
Needell says the traditional investment-grade industrial user, who represents adeeper part of the market than theAmazons of the world, doesn’t need properties with super low cap rates.
“You have essentially everyone jumpinginto a sector thinking that their alternativetenant case is going to be a sophisticatede-commerce user or at least an omnichan-nel user, like a Walmart,” Needell says.
“Those people are way more sophisticated and not going to take the traditional industrial building from five or 10years ago. So there is a bit of a trap there.”
Right now, Needell says there is bifurcation in the market between the traditional industrial and high-tech propertiesfor e-commerce users.
“There is also a need for both,” Needellsays. “The industrial user who is shippingparts is not going to be needing the samekind of systems that an Amazon, Walmartor FedEx would.”
PANDEMIC HIGHLIGHTS LIFE
Interest in life sciences was heating upbefore COVID- 19. But the pandemic hasaccelerated that trend for obvious reasons. However, while investor interest hasbeen fueled by the arrival of a vaccine, theproblems in hotel, retail and even officeare also playing into life sciences’ strength.
“Buyers are looking for other marketsegments subject to the same structuraltailwinds enjoyed by industrial and apartments in which they can deploy capital,”Tom Leahy of Real Capital Analytics wrotein a blog post.
In addition to the search for a vaccine,Leahy writes that advancements in technology, data capture and analysis and a rapidlyaging population in the developed worldare attracting vast amounts of capital to thelife sciences sector, which encompasses
An Uneven Race to Recovery. . . continued on page 48
“I THINK EVERY TENANT WHO IS CONTEMPLATING A
SHIFT IN REAL ESTATE STRATEGY STILL HAS SEVENOR EIGHT IDEAS ON THE CHALKBOARD,BUT THEY HAVEN’T FIGURED OUT EXACTLYWHAT STRATEGY TO EXECUTE GOINGFORWARD, AND THERE IS GOINGTO BE A LOT OF SPECULATION.”
SENIOR DIRECTOR OF ASSET MANAGEMENTFOR CONFIDANT ASSET MANAGEMENT