Industrial to rule them all?! (4 key factors of industrial)
Hello all,

I am a recovering residential junkie. Thanks for having me.

I have transitioned to commercial real estate specifically industrial this year and I am loving it. 

I am familiar with most asset classes especially the "trending" ones that are said to be the best. 

Here's why I think industrial is the one to rule them all:

1. Supply/Demand right now - There are places in the US that have a vacancy rate less than 1%! In my local market. the updated vacancy rate is 2.6% for H1 2022. Just like the rest of the asset classes, development has had its trouble with supply chain and labor shortages. It's been only until recent that some markets like Dallas the deliveries is higher than the absorption.
2. Rise of E-Commerce - Online sales approximate 15%-17% of all purchases. People say that it will increase to 25%-30% in the next decade. People want their stuff and will probably want it faster. With rising interest rates, consumer spending has decreased, but on a longer time horizon, logistics, warehousing, and distribution will be needed. \*I will mention that I believe there will be disruptive technology in this space, as well as the decrease cost of current technology\*
3. Onshoring/Reshoring - Overseas manufacturing has been dominate in the past decades. With supply chain, shutting down, log jams at the ports multiple businesses are bringing back some/all manufacturing to North America.
4. Just in time delivery -&gt; Just in case inventory - Supply chains were completely disrupted and logistics became the star child of the line item budgets. Lots of business ordered inventory in excess just to have it! Now, with the slowdown they are needing to move it, but I believe the habits and ways of doing business have changed.

The next couple years may be a little shaky, but my outlook on the long term is well located industrial wins!

What am I missing?
[{"id": "iq93f6b", "text": "What kind of industrial property is pretty important. Lots of tenants have specific needs that will require built-to-suit properties. Which tenants will you be targeting?\n\nMore general industrial type buildings require excellent locations which means they're probably already built up. In order to win with this you'll need to find a good deal as most quality properties will be priced with the positive industrial trend already in mind.", "replies": [{"id": "iqbbzfe", "text": "&gt;Which tenants will you be targeting?\n\nRight now I am just local mom/pop tenants and it seems like the build-to-suit and development is the key way to go for the \"institutional\" grade assets. \n\nCold storage is interesting to me as well as secondary/tertiary last mile delivery, but that is still a ways away.", "replies": [], "depth": 2}, {"id": "iqbcqh4", "text": "&gt;More general industrial type buildings require excellent locations which means they're probably already built up. In order to win with this you'll need to find a good deal as most quality properties will be priced with the positive industrial trend already in mind.\n\nI really think places like inland empire and some key distribution areas are SUPER high priced. \n\nI think there are some mom/pop plays as well as 2nd/3rd markets that will soon need some more facilities. \n\nI have been fortunate in my (short) career that being a local market expert has helped.", "replies": [], "depth": 2}], "depth": 1}, {"id": "iq9ol2k", "text": "I switched from office to industrial in end of 2019 and looking back it was probably the best timed career move of my life haha. Definitely agree that outlook is good but there are some challenges we\u2019re finding. Other than development which you mention other issues are functional obsolescence, a good portion of the inventory in our market is 80\u2019s or older vintage low clear height buildings and often low power that are just not desirable for todays warehouse users. Also property management is having tough time with crime, vehicle and cat converter theft is such an issue for tenants that often they look to landlord to hire security for them but not wanting to increase cam/opex. Despite this tenants need the space regardless so demand is persistent and I think the sector is going to stay strong for a while.", "replies": [{"id": "iqbb48l", "text": "&gt;functional obsolescence\n\nthis is what keeps me up at night. 36 ft buildings are now the norm.. and as robotics and technology gets better and more efficient, the lifespan of a building could get shorter and shorter. \n\nAlso, what a great shift in 2019!", "replies": [], "depth": 2}], "depth": 1}, {"id": "iqai7xo", "text": "Retail is also looking at industrial trying to grab some deals for stores that direct market. ie fitness.", "replies": [], "depth": 1}, {"id": "iqajl0p", "text": "The more important issue is the current strong dollar is a fantasy - China is vocally opposed to trading their manufactured goods to the US for free.  We are at war with Russia over the petrodollar.  \n\nDomestic manufacturing will return.  But the infrastructure and logistics to support it will take years.  Industrial as a sector will be huge for 20+ years.", "replies": [{"id": "iqbbi1y", "text": "Warehouse/Distribution is hot right now.\n\nDomestic manufacturing will be so interesting and could be extremely specialized, without a strategy of taking advantage of it, my best hope is that a rising tide raises all ships. \n\nWhat are your thoughts to take advantage of domestic manu?", "replies": [], "depth": 2}], "depth": 1}, {"id": "iqapsjs", "text": "Lately I\u2019ve been interested in \u201cdark stores\u201d but I don\u2019t even know how to think about scouting locations. I suspect second and third tier markets might be good. Not big enough for giant Amazon style warehouses but still decent population. \n\nhttps://techcrunch.com/tag/dark-stores/", "replies": [{"id": "iqbarcj", "text": "I read about dark stores a little bit ago. I personally have not really adopted ordering groceries online. But, cold storage and dark stores are really interesting to me. The question is how does a mom/pop take advantage of a potential trend.", "replies": [], "depth": 2}], "depth": 1}, {"id": "iqayzh7", "text": "You\u2019re right, industrial is on top\u2026for now. Just always keep in mind that everything is a cycle. Right now Industrial is definitely \u201chot\u201d and in expansion phase if you wanted to define it in the cycle\u2026.but it will eventually turn just like the other property types. On the opposite side of the spectrum office is going through a reset and there will be ALOT of pain in the next 6-18months\u2026.but those that invested in an office building at end of cycle are going to be looking great entering at bottom vs industrial entering at top.", "replies": [{"id": "iqbag60", "text": "Great thoughts! Spot light has been \"cycled\" through the different types of assets. \n\nReminds me of a saying, Wealth has been created in all the asset classes.\n\nBeing attentive and responsive especially in industrial will be key, I think industrial can be disrupted pretty quickly.", "replies": [], "depth": 2}], "depth": 1}, {"id": "iqb2k81", "text": "Tulsa has my bets", "replies": [{"id": "iqb9p2e", "text": "Good to see you on this platform!", "replies": [], "depth": 2}], "depth": 1}, {"id": "iqc7uji", "text": "I\u2019d say things are very strong for industrial right now, but there\u2019s definitely some looming risk factors out there that are worth considering.\n\nTons of speculative development in response to the aggressive demand (for the reasons you deftly outlined) poses some oversupply risk. Many markets are seeing record development pipelines and the portion of space being built without a tenant is at the highest level on record. So far, they\u2019ve been leasing up well, but if there\u2019s a demand pullback or meaningful slowdown in consumption/economic activity a supply-demand disconnect could emerge.\n\nAmazon has canceled or delayed a bunch of projects across the country. The Fed may be hiking our way into a recession to tame inflation. All while construction is at record highs. Not saying the market will crash or anything but I don\u2019t see the next 5 years going as well as the last 5 years did.", "replies": [{"id": "iqer5zc", "text": "In my market we are only adding 1.1-1.5 million sqft per year, approx 1%. I know in other places the spec has been crazy! \n\nI thought there was going to be a demand pull back H1 2022, but in my market the vacancy dropped!\n\nI saw that Amazon had canceled projects a little unnerving. \n\nAll in all, I believe that industrial has a little more resiliency than most of the larger asset classes, save for niches like affordable housing etc.", "replies": [], "depth": 2}], "depth": 1}]