Industrial Continues to Sizzle in 2018

By Barbra Murray

Hugh Kelly, PhD, CRE

It was a good year for commercial real estate’s industrial sector in 2017, and 2018 is expected to bring more of the same, according to Integra Realty Resources’ new 2018 Viewpoint Industrial Report.

“Industrial, without a doubt, stands head-and-shoulders above the other commercial property types as we enter 2018,” according to Hugh Kelly, the economist who partnered with Integra Realty Resources on the report. “A multi-year pattern of double-digit total returns, coupled with absorption rates exceeding the pace of new development, have bolstered occupancy levels and rent growth in the majority of U.S. markets.”

The numbers paint quite a positive picture. An increase of 2.64 percent in market rents is anticipated for the warehouse/manufacturing facilities in 2018, and the flex properties are expected to see an increase of 2.25 percent. Looking at individual cities, Cleveland, Hartford, Naples and Seattle are on track to experience a 5 percent—or more—rent growth this year.

Demand will remain on the upswing as well. The call for industrial facilities of all sizes will continue to drive leasing activity; even older urban warehouses will fare well, serving as fulfillment centers for the accommodation of consumers’ increasingly loud cry for next-day and same-day deliveries.

Overall, industrial conditions across much of the country are more than a little encouraging. Of the 62 markets IRR surveyed, 52 markets, or 83.8 percent, are categorized as being in the expansion phase of the cycle, and the remaining 10 markets are in recovery.

Flavor of the year—again

The industrial sector was the investor favorite in 2017, with transaction volume having jumped 23 percent over 2016 in dollars, and 18 percent in deal count by the third quarter. The future appears just as bright for 2018. A full 92 percent of core industrial markets are predicted to experience an increase in value this year, with 62 percent expected to record a rise in value exceeding 2 percent.

In the report, IRR contends that the industrial sector’s robust cyclical momentum is likely to endure not just through 2018, but beyond this year as well. “As a sector, this property type seems to be more in a mid-cycle than a late-cycle stage. This, perhaps, helps explain why industrials are running contrary to the trend of diminishing investment volume afflicting the other major property types,” Kelly noted. “Everyone, it seems, loves a winner.”

Image courtesy of Hugh Kelly