In 2011, private Real Estate Investment Trusts (REITS) and well capitalized private investors began sowing seeds for the future by acquiring investment grade industrial assets at as low as 50% of replacement cost. The wheels were set in motion back in 2009 when the public REITS started offering major rent concessions in order to boost portfolio occupancy for the sake of damage control on Wall Street. It was widely believed that these extremely low rates would be very short-term, but they remained low longer than expected.
Those hardest hit were the private investors whose pre-recession pro formas did not account for a 50% drop in Class A rental rates. Class B and C properties lost their niche as the low cost option, and several of these owners have been forced to sell. Some of the Class B tenants have chosen to upgrade faclities with better functionality and increased efficiencies at minimal additional cost.
|McDonnell Pointe - Two 57,000 sq. ft. 1st generation office /warehouse |
buildings, acquired by Colony Realty Partners
In summary, the industrial market seems to have found a solid bottom over the last three years. Tenants should give some consideration to owning, if possible. Cash investors are taking advantage of the limited opportunities now. Rents will be going up over the next couple of years, offering easy update potential to investors and a hedge against inevitable inflation. The timing is right to invest in functional, low cost, low management industrial real estate.
Block Real Estate Services
Block Hawley, St. Louis
Block Real Estate Services, LLC