6 Key Themes Driving The U.S. Industrial Real Estate Resurgence
The revival of U.S. manufacturing, the re-shoring trend, a demand for "big-box" space, and the growth of e-commerce are increasing demand for and investment in distribution facilities.
Rich Thompson, International Director and Leader, Supply Chain & Logistics Solutions, JLL (August 2012)

Recent entry to the North American logistics and industrial property market by Australian commercial real estate investor and developer the Goodman Group is the latest news to underscore the resiliency and opportunities in the U.S. industrial property market. Goodman Group expects to invest $1.5 billion in the sector across North America, mainly in new developments, through an agreement with Los Angeles-based Birtcher Development. We view this influx of foreign capital to the U.S. industrial market as one of the key trends driving the resurgence of the sector.

Low U.S. interest rates, positive macroeconomic indicators, and an increasing demand for prime, well-located logistics property are some of the other elements shining a spotlight on industrial assets such as warehouses and distribution centers. Other factors like the revival of the U.S. manufacturing sector, the trend toward moving manufacturing back to the United States, and the demand for "big-box" distribution space by the thriving e-commerce sector are also driving developers and investors toward the sector.

Compared with other product types, industrial properties are less capital-intensive, have not historically experienced the highs and lows in rental rates and values, and remain a relatively stable and predictable asset class. There are six key themes driving this resurgence:

But in the United States, the expansion has encouraged growth and investment within the broader logistics universe, impacting everything from shipping and rail-line construction to warehousing and terminal development. This has also prompted companies in both seaport and inland markets to re-examine their logistics processes and facility positioning. And the ports that stand to win the vigorous market share battle will be those that take the most holistic approach to moving goods in and out as quickly and efficiently as possible.

The Port of Virginia, for example, is undergoing a $2.2 billion multi-phase project to create the most modern terminal able to cater to the larger ships. Its private/public partnership with APM Terminal in Portsmouth will also increase its capacity and form a blueprint for other ports to follow. The Port of Newark also has funding in place for a harbor-deepening project, but in another $1 billion project, it must raise the Bayonne Bridge to receive the larger vessels. Additionally, in another improvement anticipated to double cargo traffic over the next decade, the port has started work on a $600 million ship-to-rail container facility in Jersey City. While numerous seaports are gearing up with development or logistics improvements, the West Coast ports are working on automation and efficiency.

The demand for industrial property around these U.S. receiving ports - both inland and coastal - is set to rise as U.S. ports prepare to cater to the next generation of large shipping vessels. This offers further options for serious players considering the U.S. industrial real estate market.