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REITs See Growing Demand from Business Customers

11/14/2012 | By Carisa Chappell

REITs See Growing Demand from Business Customers

REITs from various sectors are enjoying low supply amid a growing demand for their services, according to panelists at a Nov. 12 session during REITWorld 2012: NAREIT's Annual Convention for All Things REIT at the Manchester Grand Hyatt in San Diego.

James Feldman, director and research analyst at Bank of America Merrill Lynch, and Jeff Spector, managing director and senior research analyst with Bank of American Merrill Lynch, co-moderated the session. Panelists included Michael Foust, CEO of Digital Realty Trust (NYSE: DLR ); Philip Hawkins, CEO and president of DCT Industrial Trust Inc. (NYSE: DCT); and Hap Stein, chairman and CEO Regency Centers Corp. (NYSE: REG).

Stein noted that a significant portion of Regency's tenant space consists of national retailers such as Starbucks, The UPS Store and Panera Bread. In the last couple of years, Stein said his small shop and big box properties are up to 95 percent leased.

"The good news is that the supply coming online is very limited. It's at historic lows, which is good," said Stein. "We don't see our development sites getting much larger than they are today. Tenants are more disciplined and there's more of a focus on infill."

Hawkins said demand for his industrial space has been driven by strong corporate users with access to capital. Despite ongoing concerns about the political environment in Washington, he said smaller users are also feeling more comfortable making business space decisions today than they did four or five months ago.

"I don't hear fiscal cliff talk from customers. We've been so programmed to deal with crisis over the last three or four years. Companies have powered through it, and as a result, we've seen pretty good demand," Hawkins said. "We've seen small tenant demand pick up over the last month."

In the last 12 months, Foust said he's also seen "pretty good demand" for data center space, especially from the second quarter of 2012 to now. He said the demand has been more steady as companies expand their information technology functions and the popularity of cloud computing has grown. He also echoed Hawkins' sentiments about the fiscal cliff.

"There's much more outsourcing of that data source activity," he said. "I think that part of our business will continue to be pretty robust even in the middle of a fiscal cliff situation."