Increased trade, industrial production, employment and consumer consumption in the U.S. combined to drive the largest full-year Industrial investment total since 2007, according to the latest research from CBRE Group, Inc.
Total investment volume in U.S. industrial properties totaled $54 billion in 2014, a 13 percent climb over the prior year.
If industrial investment continues to rise at the pace set in 2014, the 2015 volume will reach the prior peak of $61 billion, set in 2007.
The year closed with a very active quarter for industrial property investment, in terms of sales volume. The $16.1 billion of industrial property investment in Q4 2014 reflected a 6.3 percent gain over the year-earlier quarter*. The quarter’s total was also the highest sales volume since Q3 2007 and the third highest in the past 14 years.
“The U.S. industrial market is firing on all cylinders. The low cost of energy and a strong dollar are contributing towards increased business investment, production, employment and consumer consumption.
These diverse sources of growth have combined with local economic factors to generate demand for industrial space not seen since before the financial crisis,” said Jeanette Rice, Head of Investment Research, Americas, CBRE.
“The industrial market recorded its 19th consecutive quarter of positive net absorption, marking the longest such streak in more than 20 years.
Meanwhile, stronger output is driving demand across the supply chain, from major distribution markets like the Inland Empire and Chicago to secondary markets linked to the transportation network, such as Indianapolis and Kansas City. Expectations for rent growth are above historical averages, while cap rates and IRR’s reflect healthy competition for high-quality assets.”
The light industrial space saw the greatest gain in investment activity, largely as a result of stronger market fundamentals. Light industrial, which is composed of mostly non-bulk facilities serving smaller industrial users, saw a 24 percent increase in sales volume in 2014, while investment in warehouse space rose 9 percent.
Industrial cap rate trends also reflect the increased interest in industrial product. Warehouse cap rates fell 36 basis points (bps) to an average of 7.0 percent in 2014. Light industrial cap rates averaged 7.4 percent in Q4 2014, down 40 bps from a year earlier. Foreign investors acquired $1.8 billion of industrial assets—only about 7 percent of the total foreign investment in the U.S in 2014. The largest foreign buyers were from Canada, the United Arab Emirates and Norway. Chicago was the largest target market.
Leasing demand remains strong with 66 million square feet absorbed in Q4 2014, the second strongest quarter since 2005.
Core distribution markets and key secondary markets showed significant growth.
“With 34.7 million square feet delivered in Q4 2014 and 117.2 million square feet overall for the year, the development market has returned, albeit at a significantly slower pace than historical norms,” said David Egan, Head of Industrial Research, Americas, CBRE. “The development pipeline is robust with over 140 million square feet currently under construction across the U.S.”