Foreign capital seizing the moment—The U.S. industrial investment market is ripe for growth. Since the recession in 2009, when annual industrial sales volume plummeted to just $10.9 billion, the pace of industrial investment sales increased to $35.1 billion in 2011. Overall sales volume for 2012 will likely be in the $40 billion to $45 billion range. Market activity is expected to be extremely strong in the second and third quarters, with limited new product coming to market in the fourth quarter as the election approaches. Goodman Birtcher is poised to capitalize on this trend, employing a development-led investment strategy that will focus initially on the development of prime facilities in key logistics hubs, with the ability to invest in stabilized properties over time. The venture will focus on the West Coast logistics hubs of Los Angeles, San Francisco and Seattle, and East Coast markets including New York, New Jersey and Central Pennsylvania.
“With favorable market conditions, increasing demand and a lack of large facilities in A+ locations, the time was right for Goodman Group to move into the U.S. industrial real estate market,” said O’Rourke. “This is a sure sign of confidence in the sector and we expect to see more investment interest both domestically and abroad.”
Global supply chain trends—Growing labor costs in Asia, particularly China, coupled with volatile fuel costs, have forced companies to re-evaluate their supply chain networks. “The U.S. is a huge consumer market,” said Thompson. “All things being equal, companies will want to be in close proximity to their customers as it improves speed-to-market, reduces inventory carrying and freight costs as well as reduces risks and improves customer service. These critical supply chain considerations make the U.S. increasingly more attractive from a manufacturing or sourcing perspective. Companies are diversifying their manufacturing and sourcing decisions just as an investor would their personal investment portfolio. Having a physical presence in the U.S. is becoming increasingly important.”
The explosion of e-commerce in the U.S. and globally—The primary industries leading the demand for warehouse and distribution space are food-and-beverage, e-commerce and traditional retailers. In fact, one-third of all demand for big-box space is tied to multi-channel retailers or ‘e-tailers’. The influx of e-commerce and m-commerce (mobile) revolutionized the retail sector. Retailers tapping multiple channels to sell their merchandise are finding it more cost-effective to increase online logistics operations rather than open more traditional stores, requiring an entirely different distribution model. Therefore, retailers are evolving their regional distribution networks to include e-commerce distribution centers. Demand from these companies has been growing since 2009 and will continue to do so.
“Our focus on distribution hubs such as Southern California and Central Pennsylvania is in a large part driven by the demand in this sector,” said Shannon Hondl, Chief Development Officer for Goodman Birtcher. “Jones Lang LaSalle’s expertise in this industry vertical coupled with their ability to underwrite and execute complex and strategic projects has helped put us in a market-leading position as we develop the next generation of distribution centers.”
Solid U.S. connectivity and infrastructure—The U.S. has a world-class supply chain infrastructure (e.g. ports, highways, airports, rail) which is another important factor in attracting and retaining manufacturers. Its proximity to the Panama Canal which is currently undergoing an expansion so that large ships can pass through its waters is another plus for the U.S. The expansion will encourage growth and investment within the broader logistics universe impacting everything from shipping and rail line construction to warehousing and terminal development in the U.S. and around the world. The Canal expansion is prompting companies in both seaport and inland markets to re-examine their logistics processes and facility positioning. The demand for industrial property around these receiving ports both inland and coastal, is set to rise as U.S. ports gear up to cater to the next generation of large shipping vessels. Federal funding for necessary dredging and pier-side infrastructure has not been readily available. This has created opportunity for the private sector to offer new solutions through public-private partnerships (P3’s) in order to bring port expansion projects to fruition.
“We are seeing increased interest in ‘Inland ports’ (intermodal distribution centers located inland), connected directly to major seaports,” said Thompson. “With pressure mounting on our nation’s seaports and high demand for port warehouse space, moving goods directly by rail to inland ports becomes increasingly attractive. The growing utilization of intermodal transportation will help companies reduce costs and create new opportunities for developers and investors in the industrial real estate sector.”