By Chris Cobb | Associate
Welcome back to the Big3 with CC, your weekly real estate investment source. We are approaching the intersection of college football and college basketball, my favorite time of year. College football winds down the regular season and college basketball have some exciting season openers.
Today, it’s Warehouses. They have taken the commercial real estate stage by storm this past year. Here’s why they are a worthwhile investment:
Yes, I mean Amazon. E-Commerce sales have increased by 16% year-over-year. Currently, they account for 9% of all retail sales. And with grocer partnerships such as with Whole Foods, we can expect these numbers to grow. In addition, e-commerce tenants account for approximately 12% of leasing activity for industrial spaces. Coming soon to a vacant parcel of land near you: a drone hangar that delivers your online purchased goods directly to your front doorstep.
Construction is at a High
Thus far, 208 million square feet of industrial space has been completed in 2017. This is a 25% increase from last year’s 166 million square feet built. There is also 277 million on the docket to be completed within the next year. More companies are exploring the warehouse model to house their goods and even office space to expand its reach. And with industrial vacancy rates close to 5%, the supply needs to increase. Furthermore, 70% of new warehouse construction has been done “on-spec”, which means that investors are very confident that space will be utilized.
Rents are Approaching a Peak
Get in now before the rates hit a peak! In Q3 2017, the rental rates for warehouses have hit a high at $5.40/SF. Most experts believe these rates will continue to rise, but as the supply increases, the curve will taper off. This also gives an opportunity to redo leases after a change in ownership to reflect the higher rates. Buy at a cap rate and lease rate now, take over the leases and raise the rents to the appropriate market value.
When it concerns real estate, invest yourself.