Where do you see the industrial market heading in the next 2 to 5 years, and beyond?
Sorry for the rambling, but interested in hearing some opinions on the industrial market: 

Industrial has been the ‘flavour of the month’ for a number of years now and continues to be very strong.. are there any weaknesses that you see could drive cap rates higher on this asset class? 

One thing I have heard pushing demand before COVID was online retailing with last-mile warehousing... now with COVID i have heard cold storage is becoming increasingly important due to grocery delivery services.. what is has been and will continue to be a driver of demand? My thoughts are some re-shoring of manufacturing due to supply chain vulnerabilities will further increase demand for industrial buildings. 

On the flip side what potential downside risks do you see to this asset class? In my market (southern Ontario) many cap rates are only conducive to owner-occupiers since there is no acceptable return on investment at current values. Can this trend continue? Will the worsening trade wars and tariffs impact manufacturing to a large degree?

Also one more thing, where do you see secondary markets demand for industrial going? Think small isolated town/city...
[{"id": "g1utdmn", "text": "For the asset class as a whole? I don't see much weakness in the next few years.\n\nFor particular assets? It's a rapidly evolving asset class and the problem I see with industrial is that something a national credit tenant may need one year may be obsolete to them the next, and they may not want to renew, making you settle for a worse tenant.", "replies": [], "depth": 1}, {"id": "g1utl9r", "text": "The biggest downside to industrial has always been the massive expenses associated with lease up.  This can be either for equipment for the tenant, upgrading the building, or the large leasing commission, but the expenses needed just to get a tenant are massive, even if you\u2019re a multi-million dollar company.  If the building is occupied, that\u2019s better, but like you mentioned the cap rate will be low so your return will be low as well, which could make it difficult to cover your dsc, reserve, and income.  \n\nAs far as what could drive cap rates higher, I don\u2019t see one outside of additional supply, which could happen if old retail locations are converted into distribution centers.  Now I will say that this alone has challenges, as retail rents tend to be the highest in any given market, so the justify an industrial use with retail rents is a tough sell.  That said, with Covid in place, it\u2019s the perfect environment to do just that, so provided a market sees uses like this, cap rates could go up.  I\u2019m still pessimistic, because you\u2019re basically shoving a square peg in a round role by trying to make industrial use work out of a retail location without significant capex.\n\nLastly, in terms of secondary and tertiary, I see those areas continuing to increase in demand, provided there\u2019s demand needed based on the surrounding demographics.  If there\u2019s a town that has population, that needs products delivered, then it makes sense to bring in a closer distribution hub.  But it\u2019s all about demand in the area, and if it makes sense.  Right now, for some shipments, there can be no price difference for shipping by truck within a radius of the last 100 miles.  That means once the truck leaves the last DC, whether it goes 400 miles,  or 499, it could be the same cost to deliver, so the location of the receiving DC could be up to 100 miles away and still have the same cost, or a slightly increased cost, but cheaper then starting another DC.  This is just an example, but why some secondary or tertiary markets could not see significant cap compression.", "replies": [{"id": "g1wiwzv", "text": "I agree with you in most cases for the retail-&gt;distro conversion.  In most cases it doesn't make sense logistically or physically.  In the instances where it does, you still have to hop zoning boards and such.  Retail follows rooftops, as they say, so most retail is in areas not zoned for logistics.\n\nAlso agree with you on secondary/tertiary, depending on your definition.  Some would call Nashville secondary, but I assume you're saying Sheboygan is secondary to Milwaukee, and those (Sheboygan) markets are not primed for growth, generally, where Nashville is.", "replies": [], "depth": 2}], "depth": 1}, {"id": "g1wmmq2", "text": "Industrial looks pretty sharp, for the reasons you're rattling off.  COVID is pushing along the e-commerce shift that already existed.  But supply was getting to be an issue a couple quarters ago, and there's still a lot primed to deliver into a weak market, and it is still a weak market, even if e-commerce got a boost.  Industrial vacancy has been rising for over a year now; still well below historical levels, but rising.\n\nAdditionally, the stuff does go our of date fast.  Ten years ago a 32 clear was pushed the envelope; now it's pretty average. Building into the logistics market has always kind of been the best play (see Prologis), but you do need the know-how (see Blackstone not developing anything and transacting massive portfolios).\n\nFor the smaller infill, that stuff will probably stay low, in terms of cap rates.  You can't build it, and a lot of it gets demoed because it makes more sense to build something else at a higher density there (that might go away if density starts to become less desirable). So as you pointed out, it's invaluable to owner-occupiers.  You should see what small industrial rents did in Denver after pot got legalized.   New demand to a stagnant market.\n\nAs to manufacturing and reshoring, I'm not sold.  There are some things that will be on-shored, but not because it makes fiscal sense, only because of government intervention.  Some laws may come down from on high that force manufacture of very sensitive materials to maintain some level of production in North America.  But without that intervention, it usually makes sense to go abroad.  If you make the decision to manufacture locally and need to pay workers X while your competitors are paying X minus Y, and shipping costs less than Y (which it does), then you lose.  That's manufacturing job loss in a nut shell, and barring massive intervention, that continues.\n\nA lot of small industrial demand is more service oriented than you might think, septic tank servicers, landscaping, electricians, plumbers, or things that need to be done locally, like concrete manufacture.  That's not to say manufacturing is irrelevant, but your smaller industrial tends to be more oriented towards the local community.  So they really want that proximity, and like I said, very tough to build new, small industrial in dense area.", "replies": [{"id": "g1xrrgc", "text": "Awesome thanks for the input! Some great points, and things to think about!", "replies": [], "depth": 2}], "depth": 1}, {"id": "g1x0li0", "text": "I think industrial still has potential to grow. As many before me have mentioned, the push forward with e-commerce has definitely helped the market thus far.\n\nOne area that I've been watching closely is data privacy. As data privacy continues to become a headline in legislature, more laws will be passed regarding data centers and other telecom/tech facilities. I wouldn't be surprised if in the next 5 years we see every country require that it's citizens data be stored within it's borders. I know some countries have already started doing this, for example, India requires this with certain types of data. If this legislative shift continues to move forward, we should see a rise in data centers globally. Companies will be required to open up more data facilities in order to comply with the new laws. \n\nNow, this is very much a reach and I wouldn't take this as anything more than pure scepticism, but knowing the U.S., I can totally see states start to fight over this and push for citizen data to be stored within their state borders. Again, this is just a total guess and nothing more.", "replies": [], "depth": 1}, {"id": "g1xavqb", "text": "Far, far, far away from office space. I\u2019m getting myself ready for an avalanche of cheap offices in centre of the city locations becoming available. \n\nBuy cheap &gt; apply for change of use from office space to residential (grant of approval a condition of sale) &gt; renovate &gt; profit.", "replies": [], "depth": 1}, {"id": "g1xcbbt", "text": " **In my market (southern Ontario) many cap rates are only conducive to owner-occupiers since there is no acceptable return on investment at current values.** \n\nHow are you calculating their returns?", "replies": [{"id": "g1xrdpt", "text": "Cap rates are sub 4% on many industrial assets.. so risk adjusted return is basically zero. Leverage or no leverage, its hard to make a buck at those rates.", "replies": [{"id": "g2176xf", "text": "Yet investors are saying they can pay $25 per dollar of NOI and be profitable.  I'm gonna believe them over someone that doesn't have a dog in the fight.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}]