Thursday, July 8, 2010

Industrial Sector Life Signs

The industrial sector, which has been dormant as manufacturing plummeted, may be showing signs of vitality. A recent CIRE article pointed out many positive developments and industry insiders consider this a hot topic. With net leases becoming ever more popular within the industrial sector; NNN investors could have access to a land of opportunity.

Here are some highlights from the CIRE piece:

• Investment activity and user sales increased approximately 35 percent and 50 percent respectively from 1Q09 to 1Q10.

• Capitalization rates climbed from 8.8 percent to 8.9 percent during this period but are expected to tighten as demand picks up.

• Though institutional investors ramped up in the first quarter, private investors and regional owner-users, motivated by the narrowing bid/ask gap, still accounted for the majority of transactions.

• In smaller markets, owner-users are grabbing up vacant 25,000- to 300,000-square-foot industrial properties to accommodate the 45,000 manufacturing positions that employers added in the first quarter.

• In markets where institutional investors are active, there’s a flight to quality.

• Distressed industrial properties remain rare due to the unique nature of the asset. As of 4Q09, industrial properties represented only 3 percent of the $172 billion in total troubled assets, according to Real Capital Analytics.

These signs point to an industry ready to shake off the coils of inactivity. Investors who want to diversify or simply take advantage of a positive trend should find this an attractive refuge. The current in all areas seems to point to higher quality and this often correlates to net lease properties. As more demand enters the industrial sector, net leases could see a corresponding rise.

Numerous meetings, with various net lease institutional buyers, have conveyed that the industrial sector is high on the list of where investors are looking to place capital. It would be of no surprise if there were a number of larger net lease industrial transactions announced during the summer months.