Eric Frankel, analyst at Green Street Advisors, joined REIT.com for a video interview at REITWorld 2016: NAREIT’s Annual Convention for All Things REIT at the JW Marriott Phoenix Desert Ridge.
Frankel noted that the two primary components of industrial warehouse demand – trade and consumption - have held steady during the last several years. However, the method in which goods are consumed has changed, largely due to e-commerce.
The amount of square footage required to deliver goods via e-commerce is greater than what is needed for standard brick-and- mortar shops, according to Frankel. Demand for industrial space, which was increasing at about 20 percent for the last several years, rose around 30 percent to 40 percent this year, Frankel said.
Industrial fundamentals have gradually improved in the last several years, leading to a decline in the amount of vacant space, Frankel added.
“Market rents are as high as they pretty much ever have been,” Frankel said. Meanwhile vacancy rates are at their lowest levels in 15 years.
Many institutional investors are trying to find a way to get involved with development, according to Frankel. “That could be a danger sign to the market, but to date demand has been so good that there’s been no problem with supply getting absorbed,” he said.
As for REITs, Frankel noted that the industry is being “a little more selective” towards development, compared with the period from 2005 to 2007.
“While development platforms aren’t as big as in 2007, they are a lot more profitable,” Frankel said.