Pricing for industrial distribution and warehouse properties has climbed in many U.S. markets over the past 12 months as investors have continued to focus on markets tied to large population centers and their connections to logistics and e-commerce spaces.
According to an Avison Young Industrial Investment Review, prices in the Dallas-Fort Worth (DFW) market rose the most out of the major industrial markets reviewed, increasing 20 percent to $85 per square foot.
Prices for DFW industrial assets rose more than those in New York/Northern New Jersey (15.9 percent to $167), Miami (14.8 percent to $140), Los Angeles (11.6 percent to $168), and California’s Inland Empire (7.5 percent to $123). The review analyzed data from Real Capital Analytics (RCA) from the fourth quarter of 2018 to the third quarter of 2019.
Strong population growth in North Texas has generated demand for a wide range of industrial assets, including e-commerce, and has propelled DFW into the spotlight for global investors. The market benefits from solid infrastructure, with four major intermodal terminals and the massive DFW International Airport helping position it as one of the nation’s largest inland ports.
Erik Foster, Avison Young
The DFW industrial market is also supported by strong job growth, construction activity, absorption rates and affordability, which have combined to keep the market growing at a record pace. On average, the market has added more than 20 million square feet of new supply annually over the past few years, with a current inventory of over 37 million square feet. This new product is expanding investment options and attracting a wider range of buyers.
National Outlook
Overall, the U.S. industrial market has seen significant investment activity over the past five to seven years and continues to attract a steady flow of capital, particularly in large markets such as DFW that are tied to logistics and e-commerce growth. From institutional investors to REITS and private buyers, the market is seeing sustained focus on well-located distribution and warehouse assets with strong tenancy.
The top sales of the third quarter in the DFW market included: Stoneridge Business Park, a 903,755-square-foot, four-building portfolio at 8801 Autobahn Drive in Dallas, which AEW Capital acquired in July from Realty Associates Fund as part of a 13-building portfolio; and At Home’s 528,000-square-foot warehouse at 1600 E. Plano Parkway in Plano that Broadstone Net Lease bought from Angelo Gordon as a part of a 23-building portfolio for $61 million. Many of the top transactions in DFW were portfolio sales of well-leased buildings.
Canadian investors continue to dominate foreign investment activity in the metroplex, with $181 million spent in the first three quarters of 2019, far ahead of silver medalist China, which pumped some $33 million into the market. This follows the $580 million spent by Canada for all of 2018. Chinese investment has dropped from $345 million for all of 2018, according to data from RCA.
Institutional investors made up 45.8 percent of the industrial buyer pool in the first three quarters of 2019. Private buyers accounted for 32 percent; foreign investment accounted for 12.2 percent. A look at sellers in the same time period shows private investors (40.4 percent) almost tied with institutions (39.1 percent) with foreign investors selling 7.9 percent of industrial assets. In both categories, the remaining investors were a mix of REITs and others.
The metroplex is attracting global investors like Prologis, which spent $906.9 million in the market over the past 24 months Blackstone and CDPQ followed at $595.9 million and $414 million, respectively.
The top sellers in the 24-month period ending Sept. 30, 2019, were DCT Industrial, which was purchased by Prologis in 2018, with $890.5 million in sales volume across 64 buildings; Gramercy Property Trust with $462.2 million in sales volume across 14 buildings; and Brookfield with $358.8 million in sales volume across 10 buildings.
Industrial investment activity should continue at a steady pace into 2020 and beyond, as the DFW market benefits from strong population growth, a solid logistics infrastructure and the ever-growing e-commerce sector.
— By Erik Foster, principal, capital markets group, Avison Young. This article first appeared in the December 2019 issue of Texas Real Estate Business magazine.