Recently JLL released its Q3 2015 Industrial Investment Outlook report. The big news is, as of the end of Q3 2015, sales volume has already exceeded full-year 2014 totals. Even better news, this is the 6th consecutive year of positive growth for investment transactions in industrial commercial real estate.
The interesting part is there are some definitive trends that are driving this continued growth. One being the prominence of off–shore capital making significant allocations in U.S. industrial commercial real estate. Particularly, this off-shore capital has shown an appetite to place capital in primary markets as they are perceived as “less-risky”. In addition, the majority of the transaction volume is for assets or portfolios over 200,000 square feet as equity funds and institutional buyers look to place larger capital allocations.
Obviously the fear in the minds of many is are we headed towards another market bubble. The good news is that in Q3 2015 tenant requirements are currently outpacing active speculative construction by a factor of 2.3 and vacancy rates continue to decline as the quarter averaged 6.7 percent nationally. This is 100 basis points lower than the low water mark in 2007. 2015 is on pace to complete 171.5 million square feet of new Class A industrial warehouse space. While this is a staggering number is expected to be met by 219.2 million square feet of net absorption which will be the 6th consecutive year that demand will exceed supply.
It will be interesting to see if these trends continue. For now, it appears that Class A cap rates continue to hold steady and the pipeline is full for transactions scheduled to close in Q4 2015.
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