The consensus among a panel of experts discussing capital markets and industrial investment trends at I.CON East this week in Jersey City, New Jersey, is that the industrial market remains healthy and full of opportunities.
Moderator Eric Foster, co-lead of industrial capital markets at Avison Young, led the discussion, asking panelists to share their perspectives on “where people are spending money, and how they’re sometimes maybe not spending money, in the industrial asset landscape.”
Craig Cowie, senior managing director at Affinius Capital, said that industrial has repriced aggressively and quickly. “We’re seeing development spreads that are really, really healthy on a relative basis.” He noted that it’s been tougher to compete on acquisitions compared to ground-up development, “but we’re seeing exceptionally healthy flow on what I would call infill bespoke opportunities for industrial. So it’s not one-size-fits all. It’s not one major market, but we’re finding incredible opportunities and pulling the trigger where we can.”
Similarly, Brian Tilton, managing director, portfolio management at Nuveen, said his company is “seeing compelling opportunities to pursue development across our buckets of capital” that invest in industrial. He noted Nuveen recently closed on two infill, airport-adjacent development sites where they tore down Class C office buildings and are building LEED-certified, Class A multitenant light industrial.
Andrew Goodman, senior managing director, Link Logistics Real Estate, said he considers the market “very healthy, very functional. We are buying and selling a lot.” In terms of current capital market activity, “there’s a lot of equity out there that continues to want to be deployed into real estate, into logistics. Debt is readily available, all different types of debt … so capitalizing deals is really not an issue.”
On the deployment side, Goodman noted that “it’s really been a basis play many times because as rents reset and many markets reset and recalibrate, you are able to get in at a per-square-foot value that’s below replacement cost, that feels good historically, and has good leasing demand.”
Foster noted there had been a general lack of development over the past couple of years. “What I am seeing and what we’re forecasting is a real potential landlord’s market getting even stronger.” He asked what Tilton expects for future rents and vacancies as he underwrites assets. “Do you think we’re going to be back to the days where you could really push rents, and a lot of space will be absorbed in the next year or so?”
“From an underwriting standpoint, we tend to be fairly conservative across the board, across strategies,” Tilton said. “Our team has not materially changed their underwriting over the past six to 12 months. … We tend to underwrite 3% rent growth but spend a lot of time focusing [on] utilizing our dataset to try to identify where current spot rents are and where we think we’re going to be relative to market at exit.”
“On the coast, it’s more dependent on where in-place rents are relative to market. … But where we’ve been focusing on recycling capital has been to those interior, noncoastal markets.”
Foster also asked about tenant demand and whether tenants are changing their logistics plans, especially given the impact of artificial intelligence and the growth of manufacturing in the United States.
“What we’re noticing,” Cowie said, “is a small deceleration in 3PL [third-party logistics] and a reacceleration of corporate, which I think speaks to the earnings growth,” which he noted is anywhere between 14% and 18% for the S&P 500. “And what we’re starting to see is that earnings acceleration equals confidence and [encourages] corporates to commit … longer term.”
He added that they’re also observing e-commerce tenants coming back in terms of net-new development. “So, broadly speaking, we’re feeling pretty good on the tenant side of things.”
Goodman noted many large tenants that had tabled leasing conversations a year ago during the tariff turmoil have since reengaged. Other factors driving demand are the rise in onshoring and nearshoring, as well as data center construction.
“The infrastructure to support that is massive, so all of that has a flywheel effect,” he said. “We’re seeing very strong activity in our portfolio.”
He also noted that a significant amount of tenant demand is coming from both the bulk side – assets 400,000 square feet and larger – and the small-bay side. “The middle tranche, there are some supply issues, some availability issues, so it’s a little softer, but I think we’ll work our way out of that.”
And then there is the Amazon effect. “It’s not all about Amazon, but they do set the tone,” Goodman said. “They have more than doubled their footprint since 2020.” He cited a stat he recently read saying that 66% of homes were within an hour drive of an Amazon delivery hub in 2020. “It’s now 86%. So that is very real. And those tailwinds are real.”
Returning to the topic of data centers, Tilton said that Nuveen Real Estate isn’t investing in them through its industrial platform (although its parent company has significant exposure to them). “But I think we are benefiting from the adjacent component manufacturers who need space to be close to the data centers. We’re also seeing the data centers clearly compete for land and help to hold up potential industrial land values.”
Goodman noted that access to power has become a central focus not just for data centers, but also for industrial tenants, especially those involved in advanced manufacturing. “We are combing through our portfolio to see where we could access more power to offer that to our tenants to create a leasing advantage. I don’t consider Link to be in the data center business, but we are touching it in a very real way in terms of power and access to power.”
Cowie said Affinius Capital has the same number of people devoted to data centers as it does to its industrial business. The company has developed about 400 megawatts thus far and has another 600 to 800 megawatts under control. He said the data center business is like a “rocket ship,” but projects need to have a clear path to power by 2028 or perhaps early 2029 “or you’re effectively going to go to the back of the queue in terms of the engagement by that tenant on your dirt or on your project.”
At this point, he doesn’t see the data center boom competing with capital for the industrial market. “I think the capital that wants to go into data centers is looking for something different to what I would call sort of traditional vanilla food groups of industrial housing and maybe storage, etc. … But where we are going to see it is an equity gap in the debt capital markets. The volume of capital raised by hyperscalers and data center developers is going to chew up capacity in that sector. And I think bank balance sheets are going to become really strained if they’re not there already, unless they’re recycling capital.
“With the amount of capital needed to develop data centers and AI, we’re watching the debt capital markets aspect really closely.”
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