Despite the robust rise of industrial real estate reported by some, the financing of industrial properties actually experienced a double-digital fall in 2018. Notably, alternative lenders put a particularly big dent in that financing.
Nonetheless, investors haven’t soured on the industrial sector. Not by a long shot, as some continue to believe in the long term prospects for industrial CRE.
Still, lenders are cautious. Now, industrial continues to be one of the core property types in lending, National Real Estate Investor says, banks are exercising caution about favored property types in markets where there’s been heavy construction activity. In fact, lenders are drilling down to the submarket and micro-market levels to gauge how much oversupply there might be.
So, what’s driving investor interest?
Consider Exhibit A – Demand. A new report from professional services firm BDO blames ongoing trade tensions for a slowdown in industrial investing (and, by extension, industrial lending). But while the trade uncertainty continues to linger, the long-term outlook for the industrial sector remains positive, the BDO report says.
What’s behind their positive outlook? The surge in e-commerce and the demand for ever-more-rapid deliveries are sustaining the “sunny” long-range forecast for industrial properties, according to the BDO report.
Foreign investors, in particular, aren’t shying away from industrial properties in the U.S. In 2018, industrial real estate acquisitions by foreign investors totaled $14.4 billion, up 152 percent from the previous year, according to CBRE Research. Foreign investors accounted for one-fifth of industrial real estate investments in the U.S. in 2018, with Chicago, Dallas-Fort Worth and Los Angeles attracting the most foreign investment dollars.
Now, Exhibit B – Supply. Although the supply of industrial space in the U.S. roughly equaled demand during the first quarter of 2019, availability of space still sits at its lowest point since 2000, according to a report from commercial real estate services company CBRE.
“Net absorption should pick up through the rest of this year in step with the economy,” Richard Barkham, CBRE’s global chief economist, said when the report was released. “We expected a tepid start to the year, due in part to a weaker global economy and stock market turbulence at the end of last year. But the overall picture is a nicely balanced industrial sector, with demand and supply broadly in line.”
Further, on the new development front, a report from the Urban Land Institute (ULI) and professional services firm PwC cited industrial development as one of the “best bests” for commercial real estate in 2019.
“While ports and hub cities still play key roles, infill opportunities give ‘last mile’ … sites — even multistory properties — a chance to join the party. Barring a trade war of serious proportions, industrials offer great risk-adjusted returns,” the ULI/PwC report says.
Still, CrediFi data paints a less rosy picture, with a reduction in leverage. Loans to industrial exceeded $100 Billion in 2018 and the pool of lenders to the industrial real estate sector remains deep. What happens to the positive investor sentiment in light of reduced financing markets for industrial CRE remains to be seen.
Find out more about the landscape for industrial real estate lending by downloading CrediFi’s industrial lending report.
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