The industrial real estate markets are getting a lot of attention lately and I have been getting a lot of questions from people asking about our industrial activity at Brennan Investment Group. Last year, I aligned myself with Brennan and I have been in the hunt for industrial deals ever since.
Twice a year the principals of Brennan Investment Group get together to talk about what we are seeing across the US industrial markets, and I thought I’d share some of our recent conversations. There is a lot of unique insight from the team below, but here is a spoiler alert: I’m keeping mum on the company trade secrets.
Positive signs for continued growth
We predict good drivers out there for continued growth in 2017 for the industrial real estate markets. We envision continued record rent growth at decreasing pace, especially for infill and “last-mile” properties. By last mile, I mean class B distribution and manufacturing space that makes up much of our portfolio. The rate of increases will also vary across geographic regions. We anticipate seeing rate increases in fast growing markets such as the Carolinas.
Industrial has longer legs than other product types
I focus on the industrial sector for Brennan and there’s a reason: Industrial is viewed as having longer legs than other product types. With the push from e-commerce and the strength of the industrial economy, there’s no end to demand for industrial buildings – both from investors and users – in the near future.
Infill, infill and infill
Infill development is in demand because of the interest in last-mile real estate. For a lot of cities, the footprint is fixed and there’s likely not going to be the ability to build the infrastructure needed to continue to get people outside the ‘burbs. It’s one reason why Brennan loves Charlotte. Take the river on one side of the city, the border with South Carolina on the other and add in the lake, the county line and centric uptown movement. These factors are going to continue to drive values and keep demand for infill locations as population becomes more dense and demand for space increases.
Strong by any standard
CBRE reports that the national industrial occupancy reached 95.2% at 1st Q 2017 and that Indications are that rent growth exceeded 7% in 1st Q 2017. Brennan is flexing its development muscles, and we notice that construction is rising, but at rates below historical levels. JLL reports that there is a positive absorption streak (more space leased than built) that extends to 27 consecutive quarters. In markets like the Carolinas, in-fill land sites are increasingly scarce and expensive. Cap rates have dropped steadily over last five years, and as a result class A cap rates average 5.25% and class B cap rates average 6.75%. However, with strong rent growth, total returns projections are attractive and the strong cash distributions offer additional appeal.
Brennan prides itself on creating value, not just owning properties, and in talking with the folks I am fortunate to be at the table with, it is clear how we have accomplish that goal.
Founded in 2010, Brennan has grown to be the 20th largest owner of industrial space globally through an intense focus on value in its core markets. Currently we have 28 million square feet, and we are located in 23 states with occupancy levels exceeding 95%. To learn more about Brennan, go to www.brennanllc.com