Industrial Supply Under Control

Industrial supply has not yet begun to out-pace the healthy demand in the market, according to Nick Anthony, EVP and chief investment officer at Duke Realty. Anthony is speaking on the investment outlook panel at the NAIOP’s upcoming I.CON conference on June 10 and 11. We sat down with him for an exclusive interview to hear about industrial investment trends from his perspective before he sits down with his panel mates, who include Matt Brodnik, principal of acquisitions and capital markets at Exeter Property Group; Stanley Alterman, executive managing director at USAA Real Estate Co.; and Christopher Chang, VP at Goldman, Sachs & Co.

“The biggest problem with industrial is that supply can get out ahead of demand. So far, that has not been an issue. Supply in most places has stayed under control,” Anthony tells GlobeSt.com, adding that he thinks supply has remained in check because people learned a lesson from the last downturn. “The recession is still fresh in everybody’s mind, and I think people are being a little more cautious and banks are being a little more cautious. I don’t think anyone is being overly conservative. Don’t get me wrong. There is plenty of speculative development going on in a lot of markets. It just isn’t out of control like it was in the last cycle.”

Duke Realty recently transitioned from focusing on urban office assets to industrial assets because of the stability of the industrial market. “Industrial is a very stable asset class, and it is not as capital intensive as some other asset classes. There are a lot of positive things happening there,” he says, noting that ecommerce is really the force behind the market, with major retailers like Amazon and Walmart making big investments in the industrial sector on million-plus-square-foot facilities. For that reason, Duke Realty is focusing on the big-box industrial facilities that can accommodate more ecommerce and omni-channel users.

With the supply under control and the ecommerce sector continuing the drive demand, Anthony’s investment outlook for 2015 is understandably positive. His one minor concern: interest rates. “Interest rates are going to go up, but we should be okay through the end of the year,” he says. “There is going to be some volatility towards the end of the year with people thinking about interest rates.” Next year, however, his outlook is a little more skeptical. “In 2016, it is a matter of if people will remain disciplined on the supply side. That will determine whether the cycle will end in one year or three years,” he warns. “For now, there is pressure on pricing because there is a lot more investor demand than there is supply, and I think overall, it feels good out there.”