Anyone familiar with commercial real estate knows that e-commerce has had a huge impact on industrial properties across the US.
The logistics, distribution, and 3PL sector currently has historically low vacancy – 5.5% – and rental rates are on the rise according to JLL. Many people focus on the effects Internet shopping are having on stores, but the impact on industrial properties has been tremendous. In some markets such as New Jersey and Inland Empire, new buildings are absorbed soon after becoming available. With consumer sentiment being high, personal consumption expenditures remain a prime driver of the economy according to the Bureau of Economic Analysis. As long as PCEs remain strong and e-commerce continues to expand, the industrial sector will not slowdown for the foreseeable future.
The heightened industrial activity has been mirrored in lending to the sector. The Mortgage Bankers Association noted in their Quarterly Survey of Commercial/Multifamily in Q1 that borrowing by industrial properties was very strong, just behind multifamily. The MBA noted that borrowing activity over all in Q1 was 9% year-over-year. In our Q2 report, we noted a sizable rise in industrial appraisal volume in Q2 over Q1 – 15.3%. A portion of this increase can be attributed to seasonality, but the sector is clearly expanding.
As for financing, industrial borrowing is unlikely to decrease in the second half of this year. Even if the Federal Open Markets Committee decides to raise the federal funds rate more this year, it’s unlikely that it will slow the origination volumes. Industrial may surpass multifamily in growth this year.
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