1). Strong supply and demand characteristics The industrial real estate sector currently benefits from stable, healthy demand and an increasingly constrained supply of high quality space. The national vacancy rate has slowly declined from its 2010 peak to reach 9.1 percent, a level last seen in 2009. Given a rather nominal, but still steady, amount of positive net occupancy, it has fallen by 90 basis points from the first quarter of 2011, when the figure was at 10 percent. Now it is moving toward pre-recession levels of 7.5 percent.
Demand has maintained a stable trajectory, marked by eight consecutive quarters of positive net absorption, but at 25.3 million square feet (s.f.) in the first quarter, it remains well below pre-recession levels. However, a spike in demand for 'big-box' distribution and logistics space (>400,000 s.f.), has re-introduced speculative development in key hub markets where vacancy has decreased significantly. While in the meantime, a renewed confidence from corporations has triggered a meaningful flow of build-to-suit activity. Vacancy in the big box market is running at less than 3 percent in a number of the major logistics markets in the U.S. Strong demand over the last two years has nearly burned off all existing Class A product in these locations.
2). 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 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."