Industrial Investment to Grow in 2022
The sector appears headed to ever-greater heights this year, CBRE’s U.S. investor intentions report indicates.
While the industrial sector’s strengths were readily apparent even before the pandemic era’s burst of growth, the sector appears positioned to expand even further. CBRE’s newly released U.S. investor intentions survey for 2022 confirms the sector’s attractiveness. The final report, which includes summarized responses and trends from more than 100 major and minor investors, indicates that 60% of respondents are the most optimistic about the industrial sector.
The main obstacle to investing in industrial real estate, however, may be that asset values continue to rise at an unparalleled speed, putting these investment opportunities out of reach of many. While this increase in property values has impacted virtually every major asset class, industrial buildings have risen more sharply — especially in high-demand coastal markets and in the Sun Belt.
Increasing interest rates could also put a damper on investment, as securing debt becomes more expensive, driving acquisition yields even lower. Even so, looking at the full range of property types, the CBRE report expects acquisitions this year to exceed last year’s record high of $746 billion, forecasting the figure could hit $784 billion. The survey, however, was conducted prior to Russia’s invasion of Ukraine, and the resulting ongoing geopolitical tensions could have an impact on any projection.
What Industrial Assets Are in Demand?
Not all industrial property types are created equally, and with the surge in e-commerce activity in recent years, distribution facilities and warehouses show the strongest potential for growth. However, even within this subset, some important distinctions stand out.
More than two-thirds of investors (68%) indicated that their preferred investment types were modern logistics properties in major cities. Unsurprisingly, older properties are in lower demand — likely because “modernizing” an aging industrial facility can only go so far when competing with new buildings with higher clear heights and wider column spacing. Only 18% of investors selected older facilities as their main point of interest within the sector.
Most Attractive Industrial Real Estate Markets of 2022
The report listed respondents’ top 10 preferred markets for overall investment. The Sun Belt dominated the list, comprising eight of the top 10 metros. Dallas took the first spot, followed shortly after by Austin and Phoenix. Though Austin may not be widely recognized as a logistics hub, the two other metros on the list have been home to significant investment and development activity for years.
The greater Los Angeles metro also made the list, at number 6. This area includes the Inland Empire, home to one of the largest — and most competitive — industrial markets in the country. Aforementioned price increases have occurred more sharply in this part of the country for industrial real estate than virtually any other. And it’s hardly surprising, when considering the Inland Empire’s industrial vacancy rate was 0.7% in March, according to a Yardi Matrix report, far below the national rate of 5.0%.
Related Questions
What are the best industrial investment opportunities for 2022?
The best industrial investment opportunities for 2022 are in the top 5 markets for industrial investments. According to a second-quarter report from JLL, logistics, distribution, and third-party logistics leasing activity continue to fire on all cylinders. Additionally, manufacturing is seeing a resurgence due to the increase in demand for electric vehicles. The top 5 markets for industrial investments are Inland Empire, Los Angeles, Savannah, Dallas-Fort Worth, and Chicago, according to a list compiled by blending data from JLL and Yardi Matrix’s most recent national industrial report.
When looking for a strong industrial investment, it is important to consider the value of the asset. Average sales prices on a per-square-foot basis jumped nearly 30% from 2020 to 2021, with the largest gains in modern, Class A properties. Additionally, industrial rents have increased by 5.1% year-over-year, driven by surging demand for storage and distribution space alongside incredibly tight vacancy rates.
If you are looking to acquire or refinance an industrial asset, you can get a free quote by clicking the button in the menu at https://industrialproperty.loan/blog/selecting-the-best-industrial-investment.
What are the benefits of investing in industrial real estate?
Investing in industrial real estate can provide a number of benefits, including potential tax advantages, increased cash flow, and potential appreciation. Industrial real estate can provide investors with a steady stream of income through rental payments, and the depreciation of the property can be used to offset taxes. Additionally, industrial real estate can appreciate in value over time, providing investors with a potential return on their investment. Industrial real estate can also provide investors with a hedge against inflation, as the value of the property is likely to increase with inflation.
Industrial real estate can also provide investors with a number of tax advantages. For example, investors can take advantage of accelerated depreciation, which allows them to deduct a larger portion of the cost of the property in the first year of ownership. Additionally, investors can take advantage of the mortgage interest deduction, which allows them to deduct the interest paid on the loan from their taxable income. Finally, investors can also take advantage of the 1031 exchange, which allows them to defer capital gains taxes when they sell a property and reinvest the proceeds into another property.
What are the risks associated with industrial real estate investments?
Industrial real estate investments are generally considered to be a higher-risk investment due to the potential for tenant default and the longer lease terms. Leasing velocity is much slower than in multifamily or single-family residential real estate, and so a vacant building may take longer to completely fill than a residential property. Additionally, there are other exterior and interior considerations for industrial investments, such as the need for top-of-the-line loading equipment, that can represent a significant value-add opportunity for an industrial real estate investor. Repositioning a dated industrial facility can be one of the surest ways to earn a strong return on your investment, but it also carries a certain level of risk.
What are the most important factors to consider when investing in industrial real estate?
The most important factors to consider when investing in industrial real estate are the location of the asset, proximity and ease of access to major transportation corridors, and the interior features of the building such as column spacing, clear heights, electrical supply, and floor thickness.
Location is paramount when it comes to industrial real estate investments. Proximity and ease of access to major transportation corridors is essential for distribution hubs, as well as being near a major seaport, intermodal terminal, or freight railroad line.
The interior features of industrial buildings are also important to consider. Column spacing, clear heights, electrical supply, and floor thickness are all important aspects to determining whether or not an industrial facility is a good investment.
What are the current trends in industrial real estate investments?
Industrial real estate has been the rock star of the commercial real estate realm for several years, and the pandemic served as rocket fuel for the sector, driving it where many had anticipated it would go — just in half the time. With the unparalleled rise of e-commerce and the ever-greater role logistics providers play in our lives, demand for modern industrial space has hit an all-time, sustained high.
According to a second-quarter report from JLL, leasing activity for logistics, distribution, and third-party logistics continue to fire on all cylinders. Manufacturing is also seeing a resurgence, largely driven by the increase in demand for electric vehicles. At the end of June, there was 77.2 million square feet of manufacturing space underway nationwide, with a staggering 58% directly related to electric vehicle parts or assembly operations.
The top five markets for industrial investment across the U.S. are Inland Empire, Los Angeles, Savannah, Dallas-Fort Worth, and Chicago. You can find more information on these markets in this article.
If you're looking at acquiring or refinancing an asset, you can get a free quote by clicking the button in the menu at industrialproperty.loan.
What are the best financing options for industrial real estate investments?
The best financing options for industrial real estate investments depend on the size of the investment and the desired amortization. For investments of $1,000,000 or more, Commercial Real Estate Loans offers a variety of full capital stack financial solutions, including CMBS, Life Company, Bank Loans, and Small Balance Loans. Loans can have amortizations as long as 30 years and leverage up to 75%. For more information, head to our portal and our advisors will connect you with a wide variety of lenders to get a quote at no charge.