We loved this article from the National Real Estate Investor that points out some additional trends that have been happening in commercial real estate due to the pandemic. Everybody has talked about the decline of retail, and what’s going to become of malls and retail properties, and the question that really hasn’t been answered is where does all that inventory go?
We know from the stock market that companies are actually doing quite well. Online shopping is at all time highs, which makes perfect sense. So all of that inventory has to go somewhere, and the answer to that is industrial warehouses. Whether you’re a small manufacturer who’s selling online, or if you’re Amazon, you’re building warehousing like crazy.
What’s interesting is that nearly every possible sector of real estate investor is now pursuing industrial real estate deals in every market of the country. Everyone from high net worth family offices to international global REITs are pursuing and completing industrial property deals. What’s also interesting is that, because each different real estate investor is targeting a different rate of return for their money, and industrial properties have never been sexy or really high in producing, this surge is doing what all economic surgery does. It’s increasing the targeted IRR, because now there’s fewer and fewer industrial property deals out there. Right now, they’re looking at returns from 5.5% all the way up to 8%. Some value-add investors would be seeking returns up into the teens. We’ll see if they can actually achieve that with an industrial property, and those are unlevered returns, meaning without debt.
We would encourage everybody to take a look at opportunities in your area for industrial properties. As we know, Amazon and Walmart are acquiring warehouse space everywhere, even if it’s just overflow space from time to time. If there’s any way we can help you with something like this, let us know!