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Abu Dhabi, UAEMonday 18 June 2018

Gulf investment to continue in booming US warehouse space

E-commerce firms and expected 'reshoring' from manufacturers driving demand

Abu Dhabi Investment Authority is among GCC funds that are investing in the booming US industrial property market as ecommerce surges.   Delores Johnson :
 The National
Abu Dhabi Investment Authority is among GCC funds that are investing in the booming US industrial property market as ecommerce surges. Delores Johnson : The National

The “record-breaking” industrial property market in the United States is likely to continue attracting capital from the Middle East, according to brokers.

James Breeze, the national director of industrial research for Colliers USA, said the continued expansion of the US economy, backed by a growing demand for logistics space from e-commerce, has led to a increase of prices and the lowest levels of vacant space ever recorded. Prices for industrial property rose to US$80 per square foot by the end of last year - an 8 per cent increase on 2015.

Meanwhile, by the end of the first quarter of this year, vacancy rates for industrial space dropped to the lowest ever rate recorded - 5.4 per cent - despite 55 million square feet of new space being added. A further 198 million sq ft is currently under construction.

“We are in our eighth year of economic expansion with strong job growth and consumer spending, a major driver for industrial demand,” said Mr Breeze. He added that demand from e-commerce firms “has created a renaissance for industrial real estate because of the need for modern distribution centres” in locations close to customers.

According to Colliers, e-commerce sales in the US grew 15 per cent year-on-year in the first quarter of 2017 and now account for 8.5 per cent of all retail sales.

Such strong fundamentals have been attracting investors from the Arabian Gulf countries. In April, the Bahrain-based Investcorp bought $160 million worth of industrial property in Chicago and Boston, while GFH bought $65m of industrial property in mid-western states last year to add to a $125m portfolio it bought in December 2015. In the same month, a joint venture between Abu Dhabi Investment Authority (Adia) and the Canadian pension fund PSP Investments bought a $3 billion portfolio of industrial properties from Exeter Property Group.

Jack Fraker, the managing director of CBRE’s global industrial and logistics business, said the volume of investment deals in the first half of 2017 was likely to “meet or exceed” last year’s figure.

“The US industrial & logistics sector continues to attract foreign investors,” he said. “In addition to numerous investors from the Middle East, this includes the South Koreans, Singapore-based Reits [real estate investment trusts] and investors, Chinese, Australian, European and even South American sovereign wealth funds.”

He said investors are not especially focused on particular cities, “although they do want to be in the top 50 US markets, including cities in the central part of the country”.

Peter Kroner, a senior research analyst for US industrial capital markets at JLL, said Gulf investors typically favour “the ability to deploy a significant amount of investment in one or two transactions”, buying portfolios rather than building their own.

He said these bigger deals offer investors who are new to the industry “the opportunity to build a nationally-focused portfolio of assets” in major cities.

The top four markets in the country in terms of rental performance are northern New Jersey, San Francisco mid-peninsula, Seattle and Inland Empire (southern California).

“All four markets boasted annualised growth rates of over 10 per cent,” said Mr Kroner.

He put this down to the strength of tenant demand, as well as a "conservative" approach to building new space. This has led to chronic shortages and bidding wars in some markets.

Mr Breeze said that alongside the e-commerce sector, he expects more demand for manufacturing space as a result of the Trump administration’s policies, with more firms "reshoring" manufacturing jobs from other markets.

“Reshoring is picking up in the United States,” he said. “While I cannot discuss specific deals, we are seeing the most increase in demand for real estate because of reshoring in pro-business states with a trained workforce, particularly in the south east and mid-west parts of the country.”

US Industrial Market figures, Q1 2017

Vacancy Rate 5.4%

Markets With Positive Absorption 85.7 per cent

New Supply 55 million sq ft

New Supply to Inventory 0.4 per cent

Under Construction 198.2 million sq ft

(Source: Colliers)