After global market volatility in the first half of the year created a marked shift toward the safety of core market, single-asset investment in the industrial sector during the first half of 2016, cross-border investors into the United States appear to be harkening back to familiar strategies: bigger is better.
New data from JLL reveals sector volumes are still being driven largely by single asset deals, which have accounted for 75 percent of industrial volumes year-to-date and 69 percent of volumes in the third quarter.
But that may be set to change as large-scale portfolios have come to market. In fact, an expected $3 billion in portfolio transactions is set to close in the fourth quarter, and another $5 billion worth of portfolios (valued at least $140 million apiece) are in the pipeline.
“Now with the larger scale opportunities out there we’re going to see [foreign investors] be a lot more prevalent in the tail end of this year and beginning of next,” said John Huguenard, International Director with JLL’s Capital Markets.
For example, in the fourth quarter Singapore-based GLP – the world’s second-largest investor in the industrial space – is expected to close on the Hillwood Portfolio, a 15 million-square-foot sale worth $1 billion.
“I think you’re going to see other players step in, but I think also with somebody like a GLP where they syndicate a large a percentage of the overall ownership, that will still be a theme that we’ll see throughout the rest of the year,” said Huguenard.
The GLP deal is a large part of the reason foreign direct investment (FDI) into the sector will exceed the 10-year average of 2005-2014 of US$1.4 billion. However, it is unlikely 2016 will surpass the record-setting $25.9 billion in FDI in 2015.
Much of the inbound capital will be headed to primary markets, which Huguenard describes as the “safe choice” as vacancy inches down toward 5 percent.
“What we’re seeing is a lot of the institutional investors will invest in major core markets where they can get the product they want and get a better return,” said Huguenard.
But as foreign investors get more comfortable with the industrial sector there is a likelihood of that capital being spread a bit more, especially as markets settle and cap rates continue to compress.
“Will we see broadening? Absolutely now that scale is back in the system – we didn’t have that the first half of the year,” added Huguenard.