CoStar Economist High on Prospects for Industrial Sector
04/08/2014 | by Allen Kenney

Hans Nordby, chief economist with CoStar, joined for a video interview during REITWise 2014: NAREIT’s Law, Accounting and Finance Conference held in Boca Raton, Fla.

Nordby was asked for his thoughts on sectors within the REIT industry that he expects to outperform. Of the “four major food groups” in the REIT market, Nordby singled out the industrial sector as the one that looks most promising in the near term.

“Occupied warehouse space has a 93 percent correlation in this country with GDP growth, so the economy is growing, and that’s a good thing,” he said. “If you look at the pieces of the economy that are growing, they are things that are good for growing demand for distribution space. A lot of the biggest industrial owners in the country are REITs.”

Nordby said trends in the housing market also look favorable for the industrial sector.

“In the housing market, prices are up, and that supports new construction,” he said. “Home construction doesn’t follow a straight line, but it is solidly up the last three years. When you build new homes, you need more garden hoses, you need to go to Home Depot and get new shingles to build the home. That is all very good in terms of demand through the distribution chain.”

Additionally, retail sales are strong and offshoring appears to be “taking a breather for a while,” according to Nordby.

“The U.S. has a structural advantage in energy prices that really aids the manufacturing sector, and that’s good for industrial demand,” he said. “You put all those fundamentals together with the fact that there is far too little supply underway in the industrial sector, and you’ve got the recipe for very good fundamentals.”

Nordby discussed the potential for changes in demand for commercial real estate.

“In terms of demand, there are a couple of big mega-trends at work,” he said. “In office, the Millenials are used to working in a collaborative work environment. Their idea of privacy has a lot more to do with putting headphones on that it does with closing an office door. Corporate America likes the collaborative environment, and they like having fewer square feet per worker.”

However, Nordby pointed out that the shrinking of the office workplace may be coming to an end.