As E-commerce giants like Amazon shorten delivery times, the need for new fulfillment and distribution centers has set the sector on fire, says the well-known Los Angeles Real Estate Investment Advisor and Founder of Canon Properties In Beverly Hills.
"Fulfillment and distribution centers for online retailers like Amazon are spreading like wildfire, generating some of the fastest growth I have ever seen in the industrial property sector," says noted real estate authority Alex Radosevic, Founder of Canon Properties in Beverly Hills. "If you are an investor who likes to catch a swelling wave, now is the time to put money into industrial real estate."
Although a number of factors are fueling the sector's growth, "I believe that the continued expansion of e-commerce is the key force driving the upward trend. Because online retail is slated for significant growth well into the future, industrial real estate will grow alongside it, and smart investors know this. In the past month, I was asked by two different clients to deploy $1 billion each to acquire industrial properties for their real estate portfolios. These clients are not huge risk-takers, so that tells you something about the state of this market."
Vacancy Rates Are Near Historic Lows
Since the end of the last recession, commercial property in general has been a good investment, thanks to several advantages that it offers, including stable and predictable cash flow, as well as relatively low tenant turnover, maintenance and management fees. But in the last few years, industrial properties have become red hot, especially "last mile" warehouse and distribution spaces located in major urban areas. As a result, vacancy rates have plummeted and rents have risen.
In 2018, national vacancy rates fell to a historic low of 4.3 percent as demand exceeded supply for the ninth consecutive year. In the first half of 2019, despite the addition of almost 129 million square feet of industrial space, the vacancy rate rose to just 4.9 percent. And the tightest U.S. markets, including Los Angeles, Orange County and Central New Jersey, had vacancy rates under 2.5 percent in 2019, according to industry reports.
The Hottest Markets
For 2020, our analysts along with industry leaders are forecasting rent growth of five percent for all industrial property, but as e-commerce companies race to offer same-day delivery, demand for smaller (less than 120,000 sq. ft.) warehouses could drive the rents for these properties even higher. In recent years, rents for light-industrial warehouse space have climbed by up to 30 percent annually.
"Right now, the hottest industrial property markets are Southern California's Inland Empire, Chicago, Atlanta, Dallas/Fort Worth, New Jersey and eastern and central Pennsylvania," said Radosevic. "But as the economy continues to boom and online retailers' appetite for warehouse and distribution hubs continues to grow, investors should also keep their eyes on burgeoning secondary markets such as Charlotte, Cincinnati, Denver, Louisville, Orlando, Portland, St. Louis and Tampa.
"In the short to medium term, these markets offer investors good liquidity and relatively high returns. In the longer term, just be aware that some of the smaller markets may carry more risk than larger metro areas. In smaller markets, for example, there's a greater risk of a sudden oversupply (if too many developers rush to provide additional square footage), followed by a drop in liquidity. So while now is a great time to invest in industrial property, you still need to perform your due diligence. Invest now, but invest wisely."
A member of the prestigious Forbes Real Estate Council, Alex Radosevic is one of the Los Angeles area's foremost real estate experts. His company, Canon Properties, is a market leader in real estate investing, as well as portfolio and property management for many of the country's wealthiest families, business owners and individuals. A sought-after industry insider, he is regularly invited to speak at high-profile events and conferences throughout the country.
Media Partner - News and Articles>
WORLD BIZ MAGAZINE - AUTUMN 2019 ISSUE
WORLD BANK AWARDS 2019 - THE BEST BANKS FOR BUSINESS
CSR LEADER 100 - THE MOST RESPONSIBLE COMPANIES
WORLD FDI AWARDS 2019 - THE BEST INVESTMENT DESTINATIONS
DESTIG ART INVESTMENT: TOP EMERGING ARTISTS